UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-51397
Federal Home Loan Bank of New York
(Exact name of registrant as specified in its charter)
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Federal
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13-6400946 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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101 Park Avenue, New York, N.Y.
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10178 |
(Address of principal executive offices)
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(Zip Code) |
(212) 681-6000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the issuers common stock as of April 30, 2011 was
43,197,503.
FEDERAL HOME LOAN BANK OF NEW YORK
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011
TABLE OF CONTENTS
2
Federal Home Loan Bank of New York
Statements of Condition
Unaudited (in thousands, except par value of capital stock)
As of March 31, 2011 and December 31, 2010
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March 31, 2011 |
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December 31, 2010 |
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Assets |
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Cash and due from banks (Note 3) |
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$ |
2,953,801 |
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$ |
660,873 |
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Federal funds sold |
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5,093,000 |
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|
4,988,000 |
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Available-for-sale securities, net of unrealized gains (losses)
of $14,979 at March 31, 2011 and $22,965 at December 31, 2010 (Note 5) |
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3,719,024 |
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|
3,990,082 |
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Held-to-maturity securities (Note 4) |
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Long-term securities |
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8,042,487 |
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7,761,192 |
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Advances (Note 6) |
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75,487,377 |
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81,200,336 |
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Mortgage loans held-for-portfolio, net of allowance for credit losses
of $6,969 at March 31, 2011 and $5,760 at December 31, 2010 (Note 7) |
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1,270,891 |
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|
1,265,804 |
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Accrued interest receivable |
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250,454 |
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|
287,335 |
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Premises, software, and equipment |
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14,919 |
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|
14,932 |
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Derivative assets (Note 15) |
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24,964 |
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|
22,010 |
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Other assets |
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16,917 |
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|
21,506 |
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Total assets |
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$ |
96,873,834 |
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$ |
100,212,070 |
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Liabilities and capital |
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Liabilities |
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Deposits (Note 8) |
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Interest-bearing demand |
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$ |
2,465,860 |
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$ |
2,401,882 |
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Non-interest bearing demand |
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2,971 |
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|
9,898 |
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Term |
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43,800 |
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42,700 |
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Total deposits |
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2,512,631 |
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2,454,480 |
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Consolidated obligations, net (Note 10) |
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Bonds (Includes $12,605,257 at March 31, 2011 and $14,281,463 at December 31, 2010
at fair value under the fair value option) |
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68,529,981 |
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71,742,627 |
|
Discount notes (Includes $731,892 at March 31, 2011 and $956,338 at December 31, 2010
at fair value under the fair value option) |
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19,507,159 |
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19,391,452 |
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Total consolidated obligations |
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88,037,140 |
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91,134,079 |
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Mandatorily redeemable capital stock (Note 11) |
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59,126 |
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|
63,219 |
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|
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Accrued interest payable |
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230,109 |
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|
197,266 |
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Affordable Housing Program |
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|
135,131 |
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|
138,365 |
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Payable to REFCORP |
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|
18,735 |
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|
21,617 |
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Derivative liabilities (Note 15) |
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|
839,710 |
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|
954,898 |
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Other liabilities |
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98,225 |
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|
103,777 |
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|
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|
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Total liabilities |
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91,930,807 |
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95,067,701 |
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Commitments and Contingencies (Notes 11, 15 and 17) |
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Capital (Note 11) |
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Capital stock ($100 par value), putable, issued and outstanding shares: |
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43,237 at March 31, 2011 and 45,290 at December 31, 2010 |
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4,323,664 |
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4,528,962 |
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Retained earnings |
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716,650 |
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|
712,091 |
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Accumulated other comprehensive income (loss) (Note 12) |
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Net unrealized gains on available-for-sale securities |
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14,979 |
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22,965 |
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Non-credit portion of OTTI on held-to-maturity securities, net of accretion |
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|
(89,271 |
) |
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|
(92,926 |
) |
Net unrealized losses on hedging activities |
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|
(11,468 |
) |
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|
(15,196 |
) |
Employee supplemental retirement plans (Note 14) |
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(11,527 |
) |
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(11,527 |
) |
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Total capital |
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4,943,027 |
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|
5,144,369 |
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Total liabilities and capital |
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$ |
96,873,834 |
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$ |
100,212,070 |
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|
The accompanying notes are an integral part of these unaudited financial statements.
3
Federal Home Loan Bank of New York
Statements of Income
Unaudited (in thousands, except per share data)
For the three months ended March 31, 2011 and 2010
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March 31, |
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2011 |
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2010 |
|
Interest income |
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Advances (Note 6) |
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$ |
158,696 |
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$ |
149,640 |
|
Interest-bearing deposits |
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|
966 |
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|
830 |
|
Federal funds sold |
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|
2,546 |
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|
1,543 |
|
Available-for-sale securities (Note 5) |
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|
8,639 |
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|
5,764 |
|
Held-to-maturity securities (Note 4)
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Long-term securities |
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|
71,056 |
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|
98,634 |
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Mortgage loans held-for-portfolio (Note 7) |
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|
15,486 |
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|
16,741 |
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|
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|
|
|
|
|
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|
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Total interest income |
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257,389 |
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|
273,152 |
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|
|
|
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|
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|
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Interest expense |
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|
|
|
|
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Consolidated obligations-bonds (Note 10) |
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|
114,277 |
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|
154,913 |
|
Consolidated obligations-discount notes (Note 10) |
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|
7,816 |
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|
|
9,657 |
|
Deposits (Note 8) |
|
|
470 |
|
|
|
892 |
|
Mandatorily redeemable capital stock (Note 11) |
|
|
744 |
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|
1,495 |
|
Cash collateral held and other borrowings (Note 18) |
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9 |
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|
|
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Total interest expense |
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|
123,316 |
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|
166,957 |
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|
|
|
|
|
|
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|
|
|
|
|
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|
Net interest income before provision for credit losses |
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|
134,073 |
|
|
|
106,195 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Provision for credit losses on mortgage loans |
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|
1,773 |
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|
|
709 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net interest income after provision for credit losses |
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|
132,300 |
|
|
|
105,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Other income (loss) |
|
|
|
|
|
|
|
|
Service fees and other |
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|
1,256 |
|
|
|
1,045 |
|
Instruments held at fair value Unrealized gains (losses)(Note 16) |
|
|
740 |
|
|
|
(8,419 |
) |
|
|
|
|
|
|
|
|
|
Total OTTI losses |
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|
|
|
|
|
(3,873 |
) |
Net amount
of impairment losses reclassified (from) to |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
(370 |
) |
|
|
473 |
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
(370 |
) |
|
|
(3,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gains (losses)
on derivatives and hedging activities (Note 15) |
|
|
64,570 |
|
|
|
(363 |
) |
Net realized gains from sale of available-for-sale securities
and redemption of held-to-maturity securities (Note 4
and 5) |
|
|
|
|
|
|
708 |
|
Losses from extinguishment of debt and other |
|
|
(51,893 |
) |
|
|
(227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (loss) |
|
|
14,303 |
|
|
|
(10,656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses |
|
|
|
|
|
|
|
|
Operating |
|
|
7,530 |
|
|
|
6,342 |
|
Compensation and Benefits |
|
|
38,981 |
|
|
|
12,894 |
|
Finance Agency and Office of Finance |
|
|
3,397 |
|
|
|
2,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses |
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|
49,908 |
|
|
|
21,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before assessments |
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|
96,695 |
|
|
|
73,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affordable Housing Program |
|
|
7,969 |
|
|
|
6,126 |
|
REFCORP |
|
|
17,745 |
|
|
|
13,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assessments |
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|
25,714 |
|
|
|
19,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
70,981 |
|
|
$ |
53,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (Note 13) |
|
$ |
1.61 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per share |
|
$ |
1.46 |
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|
$ |
1.41 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
4
Federal Home Loan Bank of New York
Statements of Capital Unaudited (in thousands, except per share data)
For the three months ended March 31, 2011 and 2010
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Capital Stock1 |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Class B |
|
|
Retained |
|
|
Comprehensive |
|
|
Total |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Par Value |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Capital |
|
|
Income (Loss) |
|
|
Balance, December 31, 2009 |
|
|
50,590 |
|
|
$ |
5,058,956 |
|
|
$ |
688,874 |
|
|
$ |
(144,539 |
) |
|
$ |
5,603,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of capital stock |
|
|
3,644 |
|
|
|
364,445 |
|
|
|
|
|
|
|
|
|
|
|
364,445 |
|
|
|
|
|
Redemption of capital stock |
|
|
(5,944 |
) |
|
|
(594,365 |
) |
|
|
|
|
|
|
|
|
|
|
(594,365 |
) |
|
|
|
|
Shares reclassified to mandatorily
redeemable capital stock |
|
|
(14 |
) |
|
|
(1,410 |
) |
|
|
|
|
|
|
|
|
|
|
(1,410 |
) |
|
|
|
|
Cash dividends ($1.41 per share) on
capital stock |
|
|
|
|
|
|
|
|
|
|
(70,995 |
) |
|
|
|
|
|
|
(70,995 |
) |
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
53,640 |
|
|
|
|
|
|
|
53,640 |
|
|
$ |
53,640 |
|
Net change in Accumulated other
comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit portion of OTTI on
held-to-maturity securities,
net of accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,958 |
|
|
|
3,958 |
|
|
|
3,958 |
|
Net unrealized gains on
available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,930 |
|
|
|
14,930 |
|
|
|
14,930 |
|
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,132 |
|
|
|
2,132 |
|
|
|
2,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
74,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
|
48,276 |
|
|
$ |
4,827,626 |
|
|
$ |
671,519 |
|
|
$ |
(123,519 |
) |
|
$ |
5,375,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
45,290 |
|
|
$ |
4,528,962 |
|
|
$ |
712,091 |
|
|
$ |
(96,684 |
) |
|
$ |
5,144,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of capital stock |
|
|
5,054 |
|
|
|
505,404 |
|
|
|
|
|
|
|
|
|
|
|
505,404 |
|
|
|
|
|
Redemption of capital stock |
|
|
(7,106 |
) |
|
|
(710,604 |
) |
|
|
|
|
|
|
|
|
|
|
(710,604 |
) |
|
|
|
|
Shares reclassified to mandatorily
redeemable capital stock |
|
|
(1 |
) |
|
|
(98 |
) |
|
|
|
|
|
|
|
|
|
|
(98 |
) |
|
|
|
|
Cash dividends ($1.46 per share) on
capital stock |
|
|
|
|
|
|
|
|
|
|
(66,422 |
) |
|
|
|
|
|
|
(66,422 |
) |
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
70,981 |
|
|
|
|
|
|
|
70,981 |
|
|
$ |
70,981 |
|
Net change in Accumulated other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit portion of OTTI on
held-to-maturity securities,
net of accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,655 |
|
|
|
3,655 |
|
|
|
3,655 |
|
Net unrealized losses on
available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,986 |
) |
|
|
(7,986 |
) |
|
|
(7,986 |
) |
Hedging activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,728 |
|
|
|
3,728 |
|
|
|
3,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
70,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
|
43,237 |
|
|
$ |
4,323,664 |
|
|
$ |
716,650 |
|
|
$ |
(97,287 |
) |
|
$ |
4,943,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
5
Federal Home Loan Bank of New York
Statements of Cash Flows
Unaudited (in thousands)
For the three months ended March 31, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
70,981 |
|
|
$ |
53,640 |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
Net premiums and discounts on consolidated obligations,
investments, mortgage loans and other adjustments |
|
|
(13,080 |
) |
|
|
(19,849 |
) |
Concessions on consolidated obligations |
|
|
1,678 |
|
|
|
2,497 |
|
Premises, software, and equipment |
|
|
1,399 |
|
|
|
1,365 |
|
Provision for credit losses on mortgage loans |
|
|
1,773 |
|
|
|
709 |
|
Net realized (gains) from sale of available-for-sale securities |
|
|
|
|
|
|
(708 |
) |
Credit impairment losses on held-to-maturity securities |
|
|
370 |
|
|
|
3,400 |
|
Change in net fair value adjustments on derivatives and hedging activities |
|
|
97,933 |
|
|
|
145,124 |
|
Change in fair value adjustments on financial instruments held at fair value |
|
|
(740 |
) |
|
|
8,419 |
|
Losses from extinguishment of debt |
|
|
51,741 |
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
36,881 |
|
|
|
19,781 |
|
Derivative assets due to accrued interest |
|
|
(6,425 |
) |
|
|
(9,558 |
) |
Derivative liabilities due to accrued interest |
|
|
(32,684 |
) |
|
|
(27,425 |
) |
Other assets |
|
|
3,851 |
|
|
|
2,560 |
|
Affordable Housing Program liability |
|
|
(3,234 |
) |
|
|
1,171 |
|
Accrued interest payable |
|
|
32,954 |
|
|
|
54,380 |
|
REFCORP liability |
|
|
(2,882 |
) |
|
|
(10,361 |
) |
Other liabilities |
|
|
(4,463 |
) |
|
|
(32,257 |
) |
|
|
|
|
|
|
|
Total adjustments |
|
|
165,072 |
|
|
|
139,248 |
|
|
|
|
|
|
|
|
Net cash provided
by operating
activities |
|
|
236,053 |
|
|
|
192,888 |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
795,337 |
|
|
|
3,874 |
|
Federal funds sold |
|
|
(105,000 |
) |
|
|
320,000 |
|
Deposits with other FHLBanks |
|
|
(62 |
) |
|
|
22 |
|
Premises, software, and equipment |
|
|
(1,386 |
) |
|
|
(619 |
) |
Held-to-maturity securities: |
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
|
|
Purchased |
|
|
(988,122 |
) |
|
|
|
|
Repayments |
|
|
712,634 |
|
|
|
916,331 |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
Purchased |
|
|
|
|
|
|
(581,936 |
) |
Repayments |
|
|
263,990 |
|
|
|
164,325 |
|
Proceeds from sales |
|
|
144 |
|
|
|
32,993 |
|
Advances: |
|
|
|
|
|
|
|
|
Principal collected |
|
|
93,771,274 |
|
|
|
66,264,709 |
|
Made |
|
|
(89,132,005 |
) |
|
|
(60,622,185 |
) |
Mortgage loans held-for-portfolio: |
|
|
|
|
|
|
|
|
Principal collected |
|
|
78,059 |
|
|
|
49,065 |
|
Purchased and originated |
|
|
(85,888 |
) |
|
|
(20,106 |
) |
Proceeds from sales of REO |
|
|
150 |
|
|
|
|
|
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
Loans made |
|
|
(100,000 |
) |
|
|
(27,000 |
) |
Principal collected |
|
|
100,000 |
|
|
|
27,000 |
|
|
|
|
|
|
|
|
Net cash provided
by investing
activities |
|
|
5,309,125 |
|
|
|
6,526,473 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited financial statements.
6
Federal Home Loan Bank of New York
Statements of Cash Flows Unaudited (in thousands)
For the three months ended March 31, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Financing activities |
|
|
|
|
|
|
|
|
Net change in: |
|
|
|
|
|
|
|
|
Deposits and other borrowings 1 |
|
$ |
10,927 |
|
|
$ |
5,238,715 |
|
Consolidated obligation bonds: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
16,160,153 |
|
|
|
14,103,711 |
|
Payments for maturing and early retirement |
|
|
(19,097,193 |
) |
|
|
(15,757,412 |
) |
Net payments on bonds transferred to other FHLBanks |
|
|
(167,381 |
) |
|
|
|
|
Consolidated obligation discount notes: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
41,571,744 |
|
|
|
27,155,228 |
|
Payments for maturing |
|
|
(41,454,687 |
) |
|
|
(38,157,604 |
) |
Capital stock: |
|
|
|
|
|
|
|
|
Proceeds from issuance |
|
|
505,404 |
|
|
|
364,445 |
|
Payments for redemption / repurchase |
|
|
(710,604 |
) |
|
|
(594,365 |
) |
Redemption of Mandatorily redeemable capital stock |
|
|
(4,191 |
) |
|
|
(22,512 |
) |
Cash dividends paid 2 |
|
|
(66,422 |
) |
|
|
(70,995 |
) |
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(3,252,250 |
) |
|
|
(7,740,789 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and due from banks |
|
|
2,292,928 |
|
|
|
(1,021,428 |
) |
Cash and due from banks at beginning of the period |
|
|
660,873 |
|
|
|
2,189,252 |
|
|
|
|
|
|
|
|
Cash and due from banks at end of the period |
|
$ |
2,953,801 |
|
|
$ |
1,167,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
127,107 |
|
|
$ |
136,535 |
|
Affordable Housing Program payments 3 |
|
$ |
11,203 |
|
|
$ |
4,955 |
|
REFCORP payments |
|
$ |
20,627 |
|
|
$ |
23,771 |
|
Transfers of mortgage loans to real estate owned |
|
$ |
591 |
|
|
$ |
377 |
|
Portion of non-credit OTTI (gains) losses on held-to-maturity
securities |
|
$ |
(370 |
) |
|
$ |
473 |
|
|
|
|
1 |
|
Cash flows from derivatives containing financing elements were considered as a
financing activity and were included in borrowing activity. Cash outflows were $107,935 and
$109,565 for the three months ended 2011 and 2010. |
|
2 |
|
Does not include payments to holders of mandatorily redeemable capital stock. |
|
3 |
|
AHP payments = (beginning accrual ending accrual) + AHP assessment for the period;
payments represent funds released to the Affordable Housing Program. |
The accompanying notes are an integral part of these unaudited financial statements.
7
Background
The Federal Home Loan Bank of New York (FHLBNY or the Bank) is a federally chartered
corporation, exempt from federal, state and local taxes except local real estate taxes. It is one
of twelve district Federal Home Loan Banks (FHLBanks). The FHLBanks are U.S.
government-sponsored enterprises (GSEs), organized under the authority of the Federal Home Loan
Bank Act of 1932, as amended (FHLBank Act). Each FHLBank is a cooperative owned by member
institutions located within a defined geographic district. The members purchase capital stock in
the FHLBank and receive dividends on their capital stock investment. The FHLBNYs defined
geographic district is New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. The FHLBNY
provides a readily available, low-cost source of funds for its member institutions. The FHLBNY
does not have any wholly or partially owned subsidiaries, nor does it have an equity position in
any partnerships, corporations, or off-balance-sheet special purpose entities.
The FHLBNY obtains its funds from several sources. A primary source is the issuance of FHLBank
debt instruments, called consolidated obligations, to the public. The issuances and servicing of
consolidated obligations are performed by the Office of Finance, a joint office of the FHLBanks.
These debt instruments represent the joint and several obligations of all the FHLBanks. Additional
sources of FHLBNY funding are member deposits and the issuance of capital stock. Deposits may be
accepted from member financial institutions and federal instrumentalities.
Members of the cooperative must purchase FHLBNY stock according to regulatory requirements (For
more information, see Note 11 Capital Stock and Mandatorily Redeemable Capital Stock). The
business of the cooperative is to provide liquidity for the members (primarily in the form of loans
referred to as advances) and to provide a return on members investment in FHLBNY stock in the
form of a dividend. Since the members are both stockholders and customers, the Bank operates such
that there is a trade-off between providing value to them via low pricing for advances with a
relatively lower dividend versus higher advances pricing with a relatively higher dividend. The
FHLBNY is managed to deliver balanced value to members, rather than to maximize profitability or
advance volume through low pricing.
All federally insured depository institutions, insured credit unions and insurance companies
engaged in residential housing finance can apply for membership in the FHLBank in their district.
All members are required to purchase capital stock in the FHLBNY as a condition of membership. A
member of another FHLBank or a financial institution that is not a member of any FHLBank may also
hold FHLBNY stock because of having acquired an FHLBNY member. Because the Bank operates as a
cooperative, the FHLBNY conducts business with related parties in the normal course of business and
considers all members and non-member stockholders as related parties in addition to the other
FHLBanks. For more information, see Note 18 Related Party Transactions.
The FHLBNYs primary business is making collateralized advances to members is the principal factor
that impacts the financial condition of the FHLBNY.
The FHLBNY is supervised and regulated by the Federal Housing Finance Agency (Finance Agency),
which is an independent agency in the executive branch of the U.S. government. The Finance
Agencys mission statement is to provide effective supervision, regulation and housing mission
oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks to promote their safety and
soundness, support housing finance and affordable housing, and to support a stable and liquid
mortgage market. However, while the Finance Agency establishes regulations governing the
operations of the FHLBanks, the Bank functions as a separate entity with its own management,
employees and board of directors.
Tax Status
The FHLBanks, including the FHLBNY, are exempt from ordinary federal, state, and local
taxation except for local real estate taxes.
Assessments
Resolution Funding Corporation (REFCORP) Assessments. Although the FHLBNY is exempt from
ordinary federal, state, and local taxation except for local real estate taxes, it is required to
make payments to REFCORP.
Congress established REFCORP in 1989 to help facilitate the U.S. governments bailout of failed
financial institutions. The REFCORP assessments are used by the U.S. Treasury to pay a portion of
the annual interest expense on long-term obligations issued to finance a portion of the cost of the
bailout. Principal of those long-term obligations is paid from a segregated account containing
zero-coupon U.S. government obligations, which were purchased using funds that Congress directed
the FHLBanks to provide for that purpose in 1989.
Each FHLBank is required to make payments to REFCORP as described above until the total amount of
payments actually made is equivalent to a $300 million annual annuity, whose final maturity date is
April 15, 2030. The Resolution Funding Corporation has been designated as the calculation agent
for the Affordable Housing Program and REFCORP assessments. Each FHLBank provides the amount of
quarterly income before Affordable Housing Program and REFCORP assessments and other information to
the Resolution Funding Corporation, which then performs the calculations for each quarter end.
REFCORP expense is calculated on Net income after the assessment for the Affordable Housing
Program, but before the assessment for REFCORP. The Affordable Housing Program and REFCORP
assessments are calculated simultaneously because of their dependence on each other. The FHLBNY
accrues its REFCORP assessment on a monthly basis.
8
However, based on anticipated payments to be made by the 12 FHLBanks through the second quarter of
2011, it is likely that the FHLBanks will satisfy their obligation to REFCORP by the end of that
period and, assuming that such
is the case, further payments will not be necessary after that quarter. In anticipation of the
termination of their REFCORP obligation, the FHLBanks have reached an agreement to set aside, once
the obligation has ended, amounts that would have otherwise been paid to REFCORP as restricted
retained earnings, with the objective of increasing the earnings reserves of the FHLBanks and
enhancing the safety and soundness of the FHLBank System.
Affordable Housing Program (AHP) Assessments. Section 10(j) of the FHLBank Act requires each
FHLBank to establish an Affordable Housing Program. Each FHLBank provides subsidies in the form of
direct grants and below-market interest rate advances to members who use the funds to assist in the
purchase, construction, or rehabilitation of housing for very low-, low-, and moderate-income
households. Annually, the FHLBanks must set aside for the Affordable Housing Program the greater
of $100 million or 10 percent of their regulatory defined net income. Regulatory defined net
income is GAAP net income before (1) interest expense related to mandatorily redeemable capital
stock, and (2) the assessment for Affordable Housing Program, but after the assessment for REFCORP.
The exclusion of interest expense related to mandatorily redeemable capital stock is a regulatory
interpretation of the Finance Agency. The FHLBNY accrues the AHP expense monthly.
Basis of Presentation
The preparation of financial statements in accordance with generally accepted accounting
principles in the U.S. requires management to make a number of judgments, estimates, and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities (if applicable), and the reported amounts of income and expense
during the reported periods. Although management believes these judgments, estimates, and
assumptions to be appropriate, actual results may differ. The information contained in these
financial statements is unaudited. In the opinion of management, normal recurring adjustments
necessary for a fair presentation of the interim period results have been made.
These unaudited financial statements should be read in conjunction with the FHLBNYs audited
financial statements for the year ended December 31, 2010, included in Form 10-K filed on March 25,
2011.
Note 1. Significant Accounting Policies and Estimates.
Significant Accounting Policies and Estimates
The FHLBNY has identified certain accounting policies that it believes are significant because
they require management to make subjective judgments about matters that are inherently uncertain
and because of the likelihood that materially different amounts would be reported under different
conditions or by using different assumptions. These policies include estimating the allowance for
credit losses on the advance and mortgage loan portfolios, evaluating the impairment of the Banks
securities portfolios, estimating the liabilities for employee benefit programs, and estimating
fair values of certain assets and liabilities. See Note 1 Significant Accounting Policies and
Estimates in Notes to the Financial Statements of the Federal Home Loan Bank of New York filed on
Form 10-K on March 25, 2011, which contains a summary of the Banks significant accounting policies
and estimates.
Note 2. Recently Issued Accounting Standards and Interpretations.
A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. On
April 5, 2011, the FASB issued guidance that will require creditors to evaluate modifications and
restructurings of receivables using a more principles-based approach, which may result in certain
modifications and restructurings being considered troubled debt restructurings. The required
disclosures are effective for interim and annual reporting periods beginning on or after June 15,
2011 (July 1, 2011 for the FHLBNY). The adoption of this amended guidance is likely to result in
increased financial statement disclosures, but will not affect the FHLBNYs financial condition,
results of operations, or cash flows.
Note 3. Cash and Due from Banks.
Cash on hand, cash items in the process of collection, and amounts due from correspondent
banks and the Federal Reserve Banks are included in cash and due from banks.
Compensating balances The Bank maintained average required clearing balances with the Federal
Reserve Banks of approximately $1.0 million as of March 31, 2011 and December 31, 2010. The Bank
uses earnings credits on these balances to pay for services received from the Federal Reserve
Banks.
Pass-through deposit reserves The Bank acts as a pass-through correspondent for member
institutions required to deposit reserves with the Federal Reserve Banks. Pass-through reserves
deposited with Federal Reserve Banks were $48.4 million and $49.5 million as of March 31, 2011 and
December 31, 2010. The Bank includes member reserve balances in Other liabilities in the
Statements of Condition.
9
Note 4. Held-to-Maturity Securities.
Held-to-maturity securities consist of mortgage- and asset-backed securities (collectively
mortgage-backed securities, or MBS), and state and local housing finance agency bonds.
Mortgage-backed securities The FHLBNYs investments in MBS are predominantly
government-sponsored, enterprise-issued securities, as well as investments in privately issued MBS.
State and local housing finance agency bonds Investments in primary public and private
placements of taxable obligations of state and local housing finance authorities (HFA) were
classified as held-to-maturity.
Major Security Types
The amortized cost basis, the gross unrecognized holding gains and losses1, the fair
values of held-to-maturity securities, and OTTI recognized in AOCI were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
OTTI |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Recognized |
|
|
Carrying |
|
|
Unrecognized |
|
|
Unrecognized |
|
|
Fair |
|
Issued, guaranteed or insured: |
|
Cost |
|
|
in AOCI |
|
|
Value |
|
|
Holding Gains |
|
|
Holding Losses |
|
|
Value |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
795,299 |
|
|
$ |
|
|
|
$ |
795,299 |
|
|
$ |
43,750 |
|
|
$ |
|
|
|
$ |
839,049 |
|
Freddie Mac |
|
|
226,545 |
|
|
|
|
|
|
|
226,545 |
|
|
|
12,332 |
|
|
|
|
|
|
|
238,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
1,021,844 |
|
|
|
|
|
|
|
1,021,844 |
|
|
|
56,082 |
|
|
|
|
|
|
|
1,077,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
1,856,352 |
|
|
|
|
|
|
|
1,856,352 |
|
|
|
44,556 |
|
|
|
|
|
|
|
1,900,908 |
|
Freddie Mac |
|
|
2,781,565 |
|
|
|
|
|
|
|
2,781,565 |
|
|
|
75,258 |
|
|
|
|
|
|
|
2,856,823 |
|
Ginnie Mae |
|
|
107,456 |
|
|
|
|
|
|
|
107,456 |
|
|
|
416 |
|
|
|
|
|
|
|
107,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
4,745,373 |
|
|
|
|
|
|
|
4,745,373 |
|
|
|
120,230 |
|
|
|
|
|
|
|
4,865,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
100,480 |
|
|
|
|
|
|
|
100,480 |
|
|
|
|
|
|
|
(3,763 |
) |
|
|
96,717 |
|
Freddie Mac |
|
|
607,346 |
|
|
|
|
|
|
|
607,346 |
|
|
|
1,726 |
|
|
|
(6,739 |
) |
|
|
602,333 |
|
Ginnie Mae |
|
|
44,408 |
|
|
|
|
|
|
|
44,408 |
|
|
|
1,329 |
|
|
|
|
|
|
|
45,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
mortgage-backed securities |
|
|
752,234 |
|
|
|
|
|
|
|
752,234 |
|
|
|
3,055 |
|
|
|
(10,502 |
) |
|
|
744,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
256,840 |
|
|
|
(2,046 |
) |
|
|
254,794 |
|
|
|
4,608 |
|
|
|
(795 |
) |
|
|
258,607 |
|
Commercial MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
256,840 |
|
|
|
(2,046 |
) |
|
|
254,794 |
|
|
|
4,608 |
|
|
|
(795 |
) |
|
|
258,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing (insured) |
|
|
171,066 |
|
|
|
|
|
|
|
171,066 |
|
|
|
|
|
|
|
(18,998 |
) |
|
|
152,068 |
|
Home equity loans (insured) |
|
|
252,301 |
|
|
|
(63,846 |
) |
|
|
188,455 |
|
|
|
36,764 |
|
|
|
(3,078 |
) |
|
|
222,141 |
|
Home equity loans (uninsured) |
|
|
176,388 |
|
|
|
(23,379 |
) |
|
|
153,009 |
|
|
|
16,948 |
|
|
|
(18,010 |
) |
|
|
151,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
599,755 |
|
|
|
(87,225 |
) |
|
|
512,530 |
|
|
|
53,712 |
|
|
|
(40,086 |
) |
|
|
526,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
$ |
7,376,046 |
|
|
$ |
(89,271 |
) |
|
$ |
7,286,775 |
|
|
$ |
237,687 |
|
|
$ |
(51,383 |
) |
|
$ |
7,473,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance
agency obligations |
|
$ |
755,712 |
|
|
$ |
|
|
|
$ |
755,712 |
|
|
$ |
1,277 |
|
|
$ |
(77,201 |
) |
|
$ |
679,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
$ |
755,712 |
|
|
$ |
|
|
|
$ |
755,712 |
|
|
$ |
1,277 |
|
|
$ |
(77,201 |
) |
|
$ |
679,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
8,131,758 |
|
|
$ |
(89,271 |
) |
|
$ |
8,042,487 |
|
|
$ |
238,964 |
|
|
$ |
(128,584 |
) |
|
$ |
8,152,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
OTTI |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Recognized |
|
|
Carrying |
|
|
Unrecognized |
|
|
Unrecognized |
|
|
Fair |
|
Issued, guaranteed or insured: |
|
Cost |
|
|
in AOCI |
|
|
Value |
|
|
Holding Gains |
|
|
Holding Losses |
|
|
Value |
|
Pools of Mortgages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
857,387 |
|
|
$ |
|
|
|
$ |
857,387 |
|
|
$ |
48,712 |
|
|
$ |
|
|
|
$ |
906,099 |
|
Freddie Mac |
|
|
244,041 |
|
|
|
|
|
|
|
244,041 |
|
|
|
13,316 |
|
|
|
|
|
|
|
257,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pools of mortgages |
|
|
1,101,428 |
|
|
|
|
|
|
|
1,101,428 |
|
|
|
62,028 |
|
|
|
|
|
|
|
1,163,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations/Real
Estate Mortgage Investment Conduits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
|
1,637,261 |
|
|
|
|
|
|
|
1,637,261 |
|
|
|
52,935 |
|
|
|
|
|
|
|
1,690,196 |
|
Freddie Mac |
|
|
2,790,103 |
|
|
|
|
|
|
|
2,790,103 |
|
|
|
92,746 |
|
|
|
|
|
|
|
2,882,849 |
|
Ginnie Mae |
|
|
116,126 |
|
|
|
|
|
|
|
116,126 |
|
|
|
936 |
|
|
|
|
|
|
|
117,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total CMOs/REMICs |
|
|
4,543,490 |
|
|
|
|
|
|
|
4,543,490 |
|
|
|
146,617 |
|
|
|
|
|
|
|
4,690,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgage-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae |
|
$ |
100,492 |
|
|
$ |
|
|
|
$ |
100,492 |
|
|
$ |
|
|
|
$ |
(2,516 |
) |
|
$ |
97,976 |
|
Freddie Mac |
|
|
375,901 |
|
|
|
|
|
|
|
375,901 |
|
|
|
1,031 |
|
|
$ |
(5,315 |
) |
|
|
371,617 |
|
Ginnie Mae |
|
|
48,747 |
|
|
|
|
|
|
|
48,747 |
|
|
|
1,857 |
|
|
|
|
|
|
|
50,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
mortgage-backed securities |
|
|
525,140 |
|
|
|
|
|
|
|
525,140 |
|
|
|
2,888 |
|
|
$ |
(7,831 |
) |
|
|
520,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GSE MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs/REMICs |
|
|
294,686 |
|
|
|
(2,209 |
) |
|
|
292,477 |
|
|
|
6,228 |
|
|
|
(916 |
) |
|
|
297,789 |
|
Commercial MBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-federal-agency MBS |
|
|
294,686 |
|
|
|
(2,209 |
) |
|
|
292,477 |
|
|
|
6,228 |
|
|
|
(916 |
) |
|
|
297,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured housing (insured) |
|
|
176,592 |
|
|
|
|
|
|
|
176,592 |
|
|
|
|
|
|
|
(21,437 |
) |
|
|
155,155 |
|
Home equity loans (insured) |
|
|
257,889 |
|
|
|
(66,252 |
) |
|
|
191,637 |
|
|
|
35,550 |
|
|
|
(4,316 |
) |
|
|
222,871 |
|
Home equity loans (uninsured) |
|
|
184,284 |
|
|
|
(24,465 |
) |
|
|
159,819 |
|
|
|
17,780 |
|
|
|
(21,478 |
) |
|
|
156,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset-backed securities |
|
|
618,765 |
|
|
|
(90,717 |
) |
|
|
528,048 |
|
|
|
53,330 |
|
|
|
(47,231 |
) |
|
|
534,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
$ |
7,083,509 |
|
|
$ |
(92,926 |
) |
|
$ |
6,990,583 |
|
|
$ |
271,091 |
|
|
$ |
(55,978 |
) |
|
$ |
7,205,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance
agency obligations |
|
$ |
770,609 |
|
|
$ |
|
|
|
$ |
770,609 |
|
|
$ |
1,434 |
|
|
$ |
(79,439 |
) |
|
$ |
692,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other |
|
$ |
770,609 |
|
|
$ |
|
|
|
$ |
770,609 |
|
|
$ |
1,434 |
|
|
$ |
(79,439 |
) |
|
$ |
692,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
7,854,118 |
|
|
$ |
(92,926 |
) |
|
$ |
7,761,192 |
|
|
$ |
272,525 |
|
|
$ |
(135,417 |
) |
|
$ |
7,898,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Unrecognized gross holding gains and losses represent the difference between
carrying value and fair value of a held-to-maturity security.
At March 31, 2011 and December 31, 2010, the FHLBNY had pledged MBS with an amortized cost
basis of $2.5 million and $2.7 million to the FDIC in connection with deposits maintained by the
FDIC at the FHLBNY. |
10
Unrealized Losses
The following tables summarize held-to-maturity securities with fair values below their amortized
cost basis. The fair values and gross unrealized holding losses1 are aggregated by
major security type and by the length of time individual securities have been in a continuous
unrealized loss position as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
Non-MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local
housing finance
agency obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
319,659 |
|
|
$ |
(77,201 |
) |
|
$ |
319,659 |
|
|
$ |
(77,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-MBS |
|
|
|
|
|
|
|
|
|
|
319,659 |
|
|
|
(77,201 |
) |
|
|
319,659 |
|
|
|
(77,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae-CMBS |
|
|
96,717 |
|
|
|
(3,763 |
) |
|
|
|
|
|
|
|
|
|
|
96,717 |
|
|
|
(3,763 |
) |
Freddie Mac-CMBS |
|
|
345,924 |
|
|
|
(6,739 |
) |
|
|
|
|
|
|
|
|
|
|
345,924 |
|
|
|
(6,739 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
442,641 |
|
|
|
(10,502 |
) |
|
|
|
|
|
|
|
|
|
|
442,641 |
|
|
|
(10,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-Private-Label
CMOs |
|
|
3,705 |
|
|
|
(16 |
) |
|
|
579,340 |
|
|
|
(76,153 |
) |
|
|
583,045 |
|
|
|
(76,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
446,346 |
|
|
|
(10,518 |
) |
|
|
579,340 |
|
|
|
(76,153 |
) |
|
|
1,025,686 |
|
|
|
(86,671 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
446,346 |
|
|
$ |
(10,518 |
) |
|
$ |
898,999 |
|
|
$ |
(153,354 |
) |
|
$ |
1,345,345 |
|
|
$ |
(163,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
Non-MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local
housing finance
agency obligations |
|
$ |
20,945 |
|
|
$ |
(1,270 |
) |
|
$ |
309,476 |
|
|
$ |
(78,169 |
) |
|
$ |
330,421 |
|
|
$ |
(79,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-MBS |
|
|
20,945 |
|
|
|
(1,270 |
) |
|
|
309,476 |
|
|
|
(78,169 |
) |
|
|
330,421 |
|
|
|
(79,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae-CMBS |
|
|
97,976 |
|
|
|
(2,516 |
) |
|
|
|
|
|
|
|
|
|
|
97,976 |
|
|
|
(2,516 |
) |
Freddie Mac-CMBS |
|
|
196,658 |
|
|
|
(5,315 |
) |
|
|
|
|
|
|
|
|
|
|
196,658 |
|
|
|
(5,315 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
294,634 |
|
|
|
(7,831 |
) |
|
|
|
|
|
|
|
|
|
|
294,634 |
|
|
|
(7,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS-Private-Label CMOs |
|
|
5,017 |
|
|
|
(19 |
) |
|
|
593,667 |
|
|
|
(87,302 |
) |
|
|
598,684 |
|
|
|
(87,321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
299,651 |
|
|
|
(7,850 |
) |
|
|
593,667 |
|
|
|
(87,302 |
) |
|
|
893,318 |
|
|
|
(95,152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
320,596 |
|
|
$ |
(9,120 |
) |
|
$ |
903,143 |
|
|
$ |
(165,471 |
) |
|
$ |
1,223,739 |
|
|
$ |
(174,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Unrealized losses represent the difference between amortized cost and fair
value of a security. The baseline measure of unrealized losses is amortized cost, which is not
adjusted for non-credit OTTI. Unrealized losses will not equal gross unrecognized losses, which is
adjusted for non-credit OTTI. |
Redemption terms
The amortized cost and estimated fair value of held-to-maturity securities, by contractual
maturity, were as follows (in thousands). Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without call
or prepayment fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Estimated |
|
|
Amortized |
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
State and local housing finance agency obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Due after one year through five years |
|
|
6,415 |
|
|
|
6,471 |
|
|
|
6,415 |
|
|
|
6,467 |
|
Due after five years through ten years |
|
|
61,945 |
|
|
|
60,984 |
|
|
|
61,945 |
|
|
|
60,667 |
|
Due after ten years |
|
|
687,352 |
|
|
|
612,333 |
|
|
|
702,249 |
|
|
|
625,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance agency obligations |
|
|
755,712 |
|
|
|
679,788 |
|
|
|
770,609 |
|
|
|
692,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one year through five years |
|
|
1,502 |
|
|
|
1,532 |
|
|
|
1,730 |
|
|
|
1,768 |
|
Due after five years through ten years |
|
|
1,458,848 |
|
|
|
1,479,854 |
|
|
|
1,324,480 |
|
|
|
1,351,936 |
|
Due after ten years |
|
|
5,915,696 |
|
|
|
5,991,693 |
|
|
|
5,757,299 |
|
|
|
5,851,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
7,376,046 |
|
|
|
7,473,079 |
|
|
|
7,083,509 |
|
|
|
7,205,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
8,131,758 |
|
|
$ |
8,152,867 |
|
|
$ |
7,854,118 |
|
|
$ |
7,898,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Interest rate payment terms
The following table summarizes interest rate payment terms of long-term securities classified as
held-to-maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Carrying |
|
|
Amortized |
|
|
Carrying |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
$ |
2,917,582 |
|
|
$ |
2,914,132 |
|
|
$ |
3,064,470 |
|
|
$ |
3,060,797 |
|
Floating |
|
|
2,669,981 |
|
|
|
2,669,981 |
|
|
|
2,105,272 |
|
|
|
2,105,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO Total |
|
|
5,587,563 |
|
|
|
5,584,113 |
|
|
|
5,169,742 |
|
|
|
5,166,069 |
|
Pass Thru |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
1,644,915 |
|
|
|
1,560,288 |
|
|
|
1,830,665 |
|
|
|
1,742,633 |
|
Floating |
|
|
143,568 |
|
|
|
142,374 |
|
|
|
83,102 |
|
|
|
81,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass Thru Total |
|
|
1,788,483 |
|
|
|
1,702,662 |
|
|
|
1,913,767 |
|
|
|
1,824,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS |
|
|
7,376,046 |
|
|
|
7,286,775 |
|
|
|
7,083,509 |
|
|
|
6,990,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance agency
obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed |
|
|
121,442 |
|
|
|
121,442 |
|
|
|
135,344 |
|
|
|
135,344 |
|
Floating |
|
|
634,270 |
|
|
|
634,270 |
|
|
|
635,265 |
|
|
|
635,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755,712 |
|
|
|
755,712 |
|
|
|
770,609 |
|
|
|
770,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity securities |
|
$ |
8,131,758 |
|
|
$ |
8,042,487 |
|
|
$ |
7,854,118 |
|
|
$ |
7,761,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment analysis of GSE-issued securities
The FHLBNY evaluates its individual securities issued by Fannie Mae, Freddie Mac and a government
agency by considering the creditworthiness and performance of the debt securities and the strength
of the GSEs guarantees of the securities. Based on the Banks analysis, GSE and agency-issued
securities are performing in accordance with their contractual agreements. The Housing Act
contains provisions allowing the U.S. Treasury to provide support to Fannie Mae and Freddie Mac.
In September 2008, the U.S. Treasury and the Finance Agency placed Fannie Mae and Freddie Mac into
conservatorship in an attempt to stabilize their financial conditions and their ability to support
the secondary mortgage market. The FHLBNY believes that it will recover its investments in GSE and
agency issued securities given the current levels of collateral, credit enhancements and guarantees
that exist to protect the investments.
Impairment analysis of held-to-maturity non-agency private-label mortgage- and asset-backed
securities (PLMBS)
Management evaluates its investments for OTTI on a quarterly basis by cash flow testing 100 percent
of it private-label MBS. The credit-related OTTI is recognized in earnings. The noncredit portion
of OTTI, which represents fair value losses of OTTI securities, is recognized in AOCI.
Base case (best estimate) assumptions and adverse case scenarios In evaluating its private-label
MBS
for OTTI, the FHLBNY develops a base case assumption about future changes in home prices,
prepayments, default and loss severities. The base case assumptions are the Banks best estimate
of the performance parameters of its private-label MBS. The assumptions are then input to an
industry standard bond cash flow model that generates expected cash flows based on various security
classes in the securitization structure of each private-label MBS. For more information with
respect to critical estimates and assumptions about the Banks impairment methodologies, see Note 1
Significant Accounting Policies and Estimates in Notes to Financial Statements of the Federal
Home Loan Bank of New York on Form 10-K filed on March 25, 2011. In addition to evaluating its
private-label MBS under a base case scenario, the FHLBNY also performs a cash flow analysis for
each security determined to be OTTI under a more stressful performance scenario.
Third-party Bond Insurers (Monoline insurers) Certain held-to-maturity private-label MBS owned
by the FHLBNY are insured by third-party bond insurers (monoline insurers). The bond insurance
on these investments guarantees the timely payments of principal and interest if these payments
cannot be satisfied from the cash flows of the underlying mortgage pool. The FHLBNY performs cash
flow credit impairment tests on all of its private-label insured securities. The analysis of MBS
protected by such third-party insurance looks first to the performance of the underlying security,
and considers its embedded credit enhancements in the form of excess spread, overcollateralization,
and credit subordination, to determine the collectability of all amounts due. If the embedded
credit enhancement protections are deemed insufficient to make timely payment of all amounts due,
then the FHLBNY considers the capacity of the third-party bond insurer to cover any shortfalls.
The two primary monoline insurers, Ambac and MBIA, have been subject to adverse ratings, rating
downgrades, and weakening financial performance measures. In estimating the insurers capacity to
provide credit protection in the future to cover any shortfall in cash flows expected to be
collected for securities deemed to be OTTI, the FHLBNY has developed a methodology to assess the
ability of the monoline insurers to meet future insurance obligations. Predicting when bond
insurers may no longer have the ability to perform under their contractual agreements is a key
impairment measurement parameter which the FHLBNY continually adjusts to factor the changing
operating conditions at Ambac and MBIA. Financial information, cash flows and results of
operations from the two monolines are closely monitored and analyzed by the management of FHLBNY.
Based on on-going analysis of Ambac and MBIA at each interim period in 2010 and at March 31, 2011,
the FHLBNY management has shortened the period it believes the two monolines can continue to
provide insurance support as a result of the changing operating conditions at Ambac and MBIA. For
OTTI assessment, the management of the Bank has effectively excluded Ambac as a reliable provider
of support for any future short-falls on securities insured by Ambac, and will not rely on support
from MBIA beyond June 30, 2011 for securities insured by MBIA. The FHLBNY performs this analysis
and makes a re-evaluation of the bond insurance support period quarterly.
12
Up until March 31, 2010, Ambac had been paying claims in order to meet any current cash flow
deficiency within the structure of the insured securities. On March 24, 2010, Ambac, with the
consent of the Commissioner of Insurance for the State of Wisconsin (the Commissioner), entered
into a temporary injunction to suspend payments to bond holders and to create a segregated account
for bond holders, which had no effect on payments due
from Ambac through March 31, 2011. As a result, payments from Ambac to trustees of certain insured
bonds owned by the FHLBNY were suspended. The amounts suspended were not material.
OTTI Quarters ended March 31, 2011 and 2010 To assess whether the entire amortized cost basis of
the Banks private-label MBS will be recovered, the Bank performed cash flow analysis for 100
percent of the FHLBNYs private-label MBS outstanding in all periods in this report. Cash flow
assessments identified credit impairment as reported in the following tables. Certain securities
had been previously determined to be OTTI, and the additional impairment (or re-impairment) was
due to further deterioration in the credit performance metrics of the securities. The non-credit
portion of OTTI recorded in AOCI was not significant as the fair values of almost all securities
deemed OTTI were in excess of their carrying values.
The table below summarizes the key characteristics of the securities that were deemed OTTI (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2011 |
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
Uninsured |
|
|
OTTI |
|
Security |
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
Credit |
|
|
Non-credit |
|
Classification |
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
Loss |
|
|
Loss1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime* |
|
$ |
30,869 |
|
|
$ |
18,285 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(370 |
) |
|
$ |
370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30,869 |
|
|
$ |
18,285 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(370 |
) |
|
$ |
370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2010 |
|
|
|
Insurer MBIA |
|
|
Insurer Ambac |
|
|
OTTI |
|
Security |
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
Credit |
|
|
Non-credit |
|
Classification |
|
UPB |
|
|
Value |
|
|
UPB |
|
|
Value |
|
|
Loss |
|
|
Loss1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime* |
|
$ |
21,637 |
|
|
$ |
9,730 |
|
|
$ |
45,476 |
|
|
$ |
26,015 |
|
|
$ |
(3,400 |
) |
|
$ |
(473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,637 |
|
|
$ |
9,730 |
|
|
$ |
45,476 |
|
|
$ |
26,015 |
|
|
$ |
(3,400 |
) |
|
$ |
(473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
HEL Subprime MBS supported by home equity loans. |
|
1 |
|
Positive non-credit loss represents the net amount of non-credit losses
reclassified from OCI to increase the carrying value of securities previously deemed OTTI. |
The Bank believes no OTTI exists for the remaining investments. The Banks conclusion is
based upon multiple factors: bond issuers continued satisfaction of their obligations under the
contractual terms of the securities; the estimated performance of the underlying collateral; and
the evaluation of the fundamentals of the issuers financial condition. Management has not made a
decision to sell such securities at March 31, 2011, and has also concluded that it will not be
required to sell such securities before recovery of the amortized cost basis of the securities.
Without recovery in the near term such that spreads return to levels that reflect underlying
credit characteristics, or if the credit losses of the underlying collateral within the MBS perform
worse than expected, additional OTTI may be recognized in future periods.
The following table provides rollforward information about the credit component of OTTI recognized
as a charge to earnings related to held-to-maturity securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Beginning balance |
|
$ |
29,138 |
|
|
$ |
20,816 |
|
Additions to the credit component
for OTTI loss not previously recognized |
|
|
|
|
|
|
|
|
Additional credit losses for which an OTTI
charge was previously recognized |
|
|
370 |
|
|
|
3,400 |
|
Increases in cash flows expected to be collected,
recognized over the remaining life of
the securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
29,508 |
|
|
$ |
24,216 |
|
|
|
|
|
|
|
|
13
Key Base Assumptions
The table below summarizes the weighted average and range of Key Base Assumptions for all
private-label MBS at March 31, 2011, including those deemed OTTI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Base Assumption All PLMBS at Quarter End |
|
|
|
CDR |
|
|
CPR |
|
|
Loss Severity % |
|
Security Classification |
|
Range |
|
|
Average |
|
|
Range |
|
|
Average |
|
|
Range |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS Prime |
|
|
1.0-2.8 |
|
|
|
1.4 |
|
|
|
8.2-46.1 |
|
|
|
29.7 |
|
|
|
30.0-72.1 |
|
|
|
35.3 |
|
Alt-A |
|
|
1.0-8.3 |
|
|
|
3.7 |
|
|
|
2.0-11.6 |
|
|
|
4.2 |
|
|
|
30.0-30.0 |
|
|
|
30.0 |
|
HEL Subprime |
|
|
1.0-11.7 |
|
|
|
3.7 |
|
|
|
2.0-10.6 |
|
|
|
4.4 |
|
|
|
30.0-100.0 |
|
|
|
69.2 |
|
|
|
|
** |
|
Conditional Prepayment Rate (CPR): 1 ((1-SMM)^12) where, SMM is defined as the
Single Monthly Mortality (SMM) = (Voluntary partial and full prepayments + repurchases +
Liquidated Balances)/(Beginning Principal Balance Scheduled Principal). Voluntary prepayment
excludes the liquidated balances mentioned above. |
|
** |
|
Conditional Default Rate (CDR): 1 ((1-MDR)^12) where, MDR is defined as the
Monthly Default Rate (MDR) = (Beginning Principal Balance of Liquidated Loans)/(Total Beginning
Principal Balance). |
|
** |
|
Loss Severity (Principal and interest in the current period) = Sum (Total Realized Loss
Amount)/Sum (Beginning Principal and interest Balance of Liquidated Loans). |
|
** |
|
If the present value of cash flows expected to be collected (discounted at the securitys
effective yield) is less than the amortized cost basis of the security, other-than-temporary
impairment is considered to have occurred because the entire amortized cost basis of the security
will not be recovered. The Bank considers whether or not it will recover the entire amortized cost
of the security by comparing the present value of the cash flows expected to be collected from the
security (discounted at the securitys effective yield) with the amortized cost basis of the
security. |
Note 5. Available-for-Sale Securities.
Major Security types The unamortized cost, gross unrealized gains, losses, and the fair
value1 of investments classified as available-for-sale were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
OTTI |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Recognized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
in AOCI |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Cash equivalents |
|
$ |
136 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
136 |
|
Equity funds |
|
|
6,598 |
|
|
|
|
|
|
|
327 |
|
|
|
(460 |
) |
|
|
6,465 |
|
Fixed income funds |
|
|
3,345 |
|
|
|
|
|
|
|
206 |
|
|
|
|
|
|
|
3,551 |
|
GSE and U.S. Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO-Floating |
|
|
3,644,066 |
|
|
|
|
|
|
|
18,598 |
|
|
|
(3,493 |
) |
|
|
3,659,171 |
|
CMBS-Floating |
|
|
49,900 |
|
|
|
|
|
|
|
|
|
|
|
(199 |
) |
|
|
49,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,704,045 |
|
|
$ |
|
|
|
$ |
19,131 |
|
|
$ |
(4,152 |
) |
|
$ |
3,719,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
OTTI |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Recognized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
in AOCI |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Cash equivalents |
|
$ |
120 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
120 |
|
Equity funds |
|
|
6,715 |
|
|
|
|
|
|
|
182 |
|
|
|
(651 |
) |
|
|
6,246 |
|
Fixed income funds |
|
|
3,374 |
|
|
|
|
|
|
|
207 |
|
|
|
|
|
|
|
3,581 |
|
GSE and U.S. Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO-Floating |
|
|
3,906,932 |
|
|
|
|
|
|
|
26,588 |
|
|
|
(3,157 |
) |
|
|
3,930,363 |
|
CMBS-Floating |
|
|
49,976 |
|
|
|
|
|
|
|
|
|
|
|
(204 |
) |
|
|
49,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,967,117 |
|
|
$ |
|
|
|
$ |
26,977 |
|
|
$ |
(4,012 |
) |
|
$ |
3,990,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The carrying value of Available-for-sale securities equals fair value. |
14
Unrealized Losses MBS classified as available-for-sale securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Other US Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae-CMOs |
|
$ |
70,590 |
|
|
$ |
(230 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
70,590 |
|
|
$ |
(230 |
) |
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae-CMOs |
|
|
469,133 |
|
|
|
(1,429 |
) |
|
|
|
|
|
|
|
|
|
|
469,133 |
|
|
|
(1,429 |
) |
Fannie Mae-CMBS |
|
|
49,701 |
|
|
|
(199 |
) |
|
|
|
|
|
|
|
|
|
|
49,701 |
|
|
|
(199 |
) |
Freddie Mac-CMOs |
|
|
436,881 |
|
|
|
(1,834 |
) |
|
|
|
|
|
|
|
|
|
|
436,881 |
|
|
|
(1,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
955,715 |
|
|
|
(3,462 |
) |
|
|
|
|
|
|
|
|
|
|
955,715 |
|
|
|
(3,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporarily
Impaired |
|
$ |
1,026,305 |
|
|
$ |
(3,692 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,026,305 |
|
|
$ |
(3,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Less than 12 months |
|
|
12 months or more |
|
|
Total |
|
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
Estimated |
|
|
Unrealized |
|
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
MBS Investment Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBS Other US Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ginnie Mae- CMOs |
|
$ |
71,922 |
|
|
$ |
(192 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
71,922 |
|
|
$ |
(192 |
) |
MBS-GSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae-CMOs |
|
|
374,535 |
|
|
|
(1,267 |
) |
|
|
|
|
|
|
|
|
|
|
374,535 |
|
|
|
(1,267 |
) |
Fannie Mae-CMBS |
|
|
49,772 |
|
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
|
49,772 |
|
|
|
(204 |
) |
Freddie Mac-CMOs |
|
|
368,652 |
|
|
|
(1,698 |
) |
|
|
|
|
|
|
|
|
|
|
368,652 |
|
|
|
(1,698 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total MBS-GSE |
|
|
792,959 |
|
|
|
(3,169 |
) |
|
|
|
|
|
|
|
|
|
|
792,959 |
|
|
|
(3,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporarily
Impaired |
|
$ |
864,881 |
|
|
$ |
(3,361 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
864,881 |
|
|
$ |
(3,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management of the FHLBNY has concluded that gross unrealized losses at March 31, 2011 and
December 31, 2010, as summarized in the table above, were caused by interest rate changes, credit
spreads widening and reduced liquidity in the applicable markets. The FHLBNY has reviewed the
investment security holdings and determined, based on creditworthiness of the securities and
including any underlying collateral and/or insurance provisions of the security, that unrealized
losses in the analysis above represent temporary impairment.
Impairment analysis on Available-for-sale securities The Banks portfolio of mortgage-backed
securities classified as available-for-sale (AFS) is comprised primarily of GSE-issued
collateralized mortgage obligations which are pass through securities. The FHLBNY evaluates its
individual securities issued by Fannie Mae and Freddie Mac by considering the creditworthiness and
performance of the debt securities and the strength of the government-sponsored enterprises
guarantees of the securities. Based on the Banks analysis, GSE securities are performing in
accordance with their contractual agreements. The Housing Act contains provisions allowing the
U.S. Treasury to provide support to Fannie Mae and Freddie Mac. The U.S. Treasury and the Finance
Agency placed Fannie Mae and Freddie Mac into conservatorship in an attempt to stabilize their
financial conditions and their ability to support the secondary mortgage market. The FHLBNY
believes that it will recover its investments in GSE-issued securities given the current levels of
collateral, credit enhancements, and guarantees that exist to protect the investments. Management
has not made a decision to sell such securities at March 31, 2011 or subsequently. Management also
concluded that it is more likely than not that it will not be required to sell such securities
before recovery of the amortized cost basis of the security. The FHLBNY believes that these
securities were not other-than-temporarily impaired as of March 31, 2011 or at December 31, 2010.
The Bank has a grantor trust to fund current and future payments for its employee supplemental
pension plans and investment in the trusts are classified as available-for-sale. The grantor trust
invests in money market, equity and fixed-income and bond funds. Investments in equity and
fixed-income funds are redeemable at short notice, and realized gains and losses from investments
in the funds were not significant. No available-for-sale-securities had been pledged at March 31,
2011 and December 31, 2010.
15
Redemption terms
The amortized cost and estimated fair value1 of investments classified as
available-for-sale, by contractual maturity, were as follows (in thousands). Expected maturities
may differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE/U.S. agency issued CMO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after ten years |
|
$ |
3,644,066 |
|
|
$ |
3,659,171 |
|
|
$ |
3,906,932 |
|
|
$ |
3,930,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE/U.S. agency issued CMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after five years
through ten years |
|
|
49,900 |
|
|
|
49,701 |
|
|
|
49,976 |
|
|
|
49,772 |
|
Fixed income funds, equity funds
and cash equivalents* |
|
|
10,079 |
|
|
|
10,152 |
|
|
|
10,209 |
|
|
|
9,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,704,045 |
|
|
$ |
3,719,024 |
|
|
$ |
3,967,117 |
|
|
$ |
3,990,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Determined to be redeemable at anytime. |
|
1 |
|
The carrying value of Available-for-sale securities equals fair value. |
Interest rate payment terms
The following table summarizes interest rate payment terms of investments classified as
available-for-sale securities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage pass-throughs-GSE/U.S. agency
issued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate* |
|
$ |
3,644,066 |
|
|
$ |
3,659,171 |
|
|
$ |
3,906,932 |
|
|
$ |
3,930,363 |
|
Variable-rate CMBS* |
|
|
49,900 |
|
|
|
49,701 |
|
|
|
49,976 |
|
|
|
49,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,693,966 |
|
|
|
3,708,872 |
|
|
|
3,956,908 |
|
|
|
3,980,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income funds, equity funds
and cash equivalents |
|
|
10,079 |
|
|
|
10,152 |
|
|
|
10,209 |
|
|
|
9,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,704,045 |
|
|
$ |
3,719,024 |
|
|
$ |
3,967,117 |
|
|
$ |
3,990,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of available-for-sale securities
Sales of securities and investments designated as available-for-sales were not material in all
periods in this
Form 10-Q.
Note 6. Advances.
Redemption terms
Contractual redemption terms and yields of advances were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Weighted2 |
|
|
|
|
|
|
|
|
|
|
Weighted2 |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Percentage |
|
|
|
|
|
|
Average |
|
|
Percentage |
|
|
|
Amount |
|
|
Yield |
|
|
of Total |
|
|
Amount |
|
|
Yield |
|
|
of Total |
|
|
Overdrawn demand deposit accounts |
|
$ |
|
|
|
|
|
% |
|
|
|
% |
|
$ |
196 |
|
|
|
1.15 |
% |
|
|
|
% |
Due in one year or less |
|
|
17,115,800 |
|
|
|
1.61 |
|
|
|
23.67 |
|
|
|
16,872,651 |
|
|
|
1.77 |
|
|
|
21.94 |
|
Due after one year through two years |
|
|
10,219,244 |
|
|
|
2.40 |
|
|
|
14.13 |
|
|
|
9,488,116 |
|
|
|
2.81 |
|
|
|
12.33 |
|
Due after two years through three years |
|
|
7,910,627 |
|
|
|
2.82 |
|
|
|
10.94 |
|
|
|
7,221,496 |
|
|
|
2.94 |
|
|
|
9.39 |
|
Due after three years through four years |
|
|
4,435,207 |
|
|
|
2.46 |
|
|
|
6.13 |
|
|
|
5,004,502 |
|
|
|
2.69 |
|
|
|
6.50 |
|
Due after four years through five years |
|
|
7,534,259 |
|
|
|
3.10 |
|
|
|
10.42 |
|
|
|
6,832,709 |
|
|
|
2.93 |
|
|
|
8.88 |
|
Due after five years through six years |
|
|
10,549,451 |
|
|
|
4.35 |
|
|
|
14.60 |
|
|
|
9,590,448 |
|
|
|
4.32 |
|
|
|
12.46 |
|
Thereafter |
|
|
14,535,683 |
|
|
|
3.52 |
|
|
|
20.11 |
|
|
|
21,929,421 |
|
|
|
3.68 |
|
|
|
28.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
72,300,271 |
|
|
|
2.84 |
% |
|
|
100.00 |
% |
|
|
76,939,539 |
|
|
|
3.03 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP advances 1 |
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
(42 |
) |
|
|
|
|
|
|
|
|
Hedging adjustments |
|
|
3,187,142 |
|
|
|
|
|
|
|
|
|
|
|
4,260,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
75,487,377 |
|
|
|
|
|
|
|
|
|
|
$ |
81,200,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Discounts on AHP advances were amortized to interest income using the level-yield
method and were not significant for all periods reported. Interest rates on AHP advances ranged
from 1.25% to 3.50% at March 31, 2011 and December 31, 2010. |
|
2 |
|
The weighted average yield is the weighted average coupon rates for advances,
unadjusted for swaps. For floating-rate advances, the weighted average
rate is the rate outstanding at the reporting dates. |
16
Monitoring and evaluating credit losses
The FHLBNY closely monitors the creditworthiness of the institutions to which it lends. The FHLBNY
also closely monitors the quality and value of the assets that are pledged as collateral by its
members. The FHLBNY periodically assesses the mortgage underwriting and documentation standards of
its borrowing members. In addition, the FHLBNY has collateral policies and restricted lending
procedures in place to manage its exposure to those members experiencing difficulty in meeting
their capital requirements or other standards of creditworthiness.
The FHLBNY has not experienced any losses on advances extended to any member since its inception.
The FHLBank Act affords any security interest granted to the FHLBNY by a member, or any affiliate
of such member, priority over the claims and rights of any party (including any receiver,
conservator, trustee, or similar party) having the rights of a lien creditor. However, the
FHLBNYs security interest is not entitled to priority over claims and rights that (1) would be
entitled to priority under applicable law, or (2) are held by a bona fide purchaser for value or by
parties that are secured by actual perfected security interests.
The FHLBNYs members are required to pledge collateral to secure advances. Eligible collateral
includes: (1) one-to-four-family and multi-family mortgages; (2) U.S. Treasury and
government-agency securities; (3) mortgage-backed securities; and (4) certain other collateral
which is real estate-related and has a readily ascertainable value, and in which the FHLBNY can
perfect a security interest. The FHLBNY has the right to take such steps as it deems necessary to
protect its secured position on outstanding advances, including requiring additional collateral
(whether or not such additional collateral would otherwise be eligible to secure a loan). The
FHLBNY also has a statutory lien under the FHLBank Act on the capital stock of its members, which
serves as further collateral for members indebtedness to the FHLBNY.
The FHLBNY has established asset classification and reserve policies. All adversely classified
assets of the FHLBNY will have a reserve established for probable losses. Based upon the
collateral held as security and prior repayment histories, no allowance for losses on advances is
currently deemed necessary by management.
The FHLBNY uses methodologies to identify and measure credit risk arising from: creditworthiness
risk arising from members, counterparties, and other entities; collateral risk arising from type,
quality, and lien status; and concentration risk arising from borrower, portfolio, geographic area,
industry, or product type.
Creditworthiness Risk Advances
The FHLBNYs potential exposure to creditworthiness risk arises from the deterioration of the
financial health of FHLBNY members. The FHLBNY manages its exposure to the creditworthiness of
members by monitoring their collateral and advance levels daily and by analyzing their financial
health each quarter.
Collateral Risk Advances
The FHLBNY is exposed to collateral risk if it is unable to perfect its interest in pledged
collateral, or when the liquidation value of pledged collateral does not fully cover the FHLBNYs
exposure. The FHLBNY manages this risk by pricing collateral on a weekly basis, performing on-site
reviews of pledged mortgage collateral from time to time, and reviewing pledged portfolio
concentrations on a quarterly basis. The FHLBNY requires that members pledge a specific amount of
excess collateral above the par amount of their outstanding obligations. Members provide the
FHLBNY with reports of pledged collateral and the FHLBNY evaluates the eligibility and value of the
pledged collateral.
The FHLBNYs loan and collateral agreements give the FHLBNY a security interest in assets held by
borrowers that is sufficient to cover their obligations to the FHLBNY. The FHLBNY may supplement
this security interest by imposing additional reporting, segregation or delivery requirements on
the borrower. The FHLBNY assigns specific collateral requirements to a borrower, based on a number
of factors. These include, but are not limited to: (1) the borrowers overall financial condition;
(2) the degree of complexity involved in the pledging, verifying, and reporting of collateral
between the borrower and the FHLBNY, especially when third-party pledges, custodians, outside
service providers and pledges to other entities are involved; and (3) the type of collateral
pledged.
The FHLBNY has also established collateral maintenance levels for borrower collateral that are
intended to help ensure that the FHLBNY has sufficient collateral to cover credit extensions
reasonable expenses arising from potential collateral liquidation and other unknown factors.
Collateral maintenance levels are designated by collateral type and are periodically adjusted to
reflect current market and business conditions. Maintenance levels for individual borrowers may
also be adjusted based on the overall financial condition of the borrower or another, third-party
entity involved in the collateral relationship with the FHLBNY. Borrowers are required to maintain
an amount of eligible collateral with a liquidation value at least equal to the borrowers current
collateral maintenance level. All borrowers that pledge mortgage loans as collateral are also
required to provide, on a monthly or quarterly basis, a detailed listing of mortgage loans pledged.
The FHLBNY uses this detailed reporting to monitor and track payment performance of the collateral
and to assess the risk profile of the pledged collateral based on mortgage characteristics,
geographic concentrations and other pertinent risk factors.
Drawing on current industry standards, the FHLBNY establishes collateral valuation methodologies
for each collateral type and calculates the estimated liquidation value of the pledged collateral
to determine whether a borrower has satisfied its collateral maintenance requirement. The FHLBNY
evaluates liquidation values on a weekly basis.
The FHLBNY makes on-site review of borrowers in connection with the evaluation of the borrowers
pledged mortgage collateral. This review involves a qualitative assessment of risk factors that
includes an examination of legal documentation, credit underwriting, and loan-servicing practices
on mortgage collateral. The FHLBNY has developed the on-site review process to more accurately
value each borrowers pledged mortgage portfolio based on current secondary-market standards. The
results of the review may lead to adjustments in the estimated liquidation
value of pledged collateral. The FHLBNY may also make additional market value adjustments to a
borrowers pledged mortgage collateral based on the quality and accuracy of the automated data
provided to the FHLBNY.
17
Credit Risk and Concentration Risk Advances
While the FHLBNY has never experienced a credit loss on an advance, the expanded eligible
collateral for Community Financial Institutions and non-member housing associates permitted, but
not required, by the Finance Agency provides the potential for additional credit risk for the
FHLBNY. It is the FHLBNYs current policy not to accept expanded eligible collateral from
Community Financial Institutions. The management of the FHLBNY has the policies and procedures in
place to appropriately manage credit risk associated with the advance business. In extending
credit to a member, the FHLBNY adheres to specific credit policy limits approved by its Board of
Directors. The FHLBNY has not established limits for the concentrations of specific types of
advances, but management reports the activity in advances to the Board each month. Each quarter,
management reports the concentrations of convertible advances made to individual members. At March
31, 2011 and December 31, 2010, all advances were current. Management does not anticipate any
credit losses, and accordingly, the FHLBNY has not provided an allowance for credit losses on
advances. The FHLBNYs potential credit risk from advances is concentrated in commercial banks,
savings institutions and insurance companies. At March 31, 2011 and December 31, 2010, the Bank
had advances of $51.5 billion and $54.1 billion outstanding to ten member institutions,
representing 71.2% and 70.3% of total advances outstanding, and sufficient collateral was held to
cover the advances to these institutions.
Collateral Coverage of Advances
Security Terms. The FHLBNY lends to financial institutions involved in housing finance within its
district. In addition, the FHLBNY is permitted, but not required, to accept collateral in the form
of small business or agricultural loans (expanded collateral) from Community Financial
Institutions (CFIs). CFIs are defined in the Housing Act as those institutions that have, as of
the date of the transaction at issue, less than $1,040 million in average total assets over the
three years preceding that date (subject to annual adjustment by the Finance Agency director based
on the Consumer Price Index). It is the FHLBNYs policy not to accept such expanded collateral for
advances. Borrowing members pledge their capital stock of the FHLBNY as additional collateral for
advances. As of March 31, 2011, the FHLBNY had rights to collateral with an estimated value
greater than outstanding advances. Based upon the financial condition of the member, the FHLBNY:
|
(1) |
|
Allows a member to retain possession of the collateral assigned to the FHLBNY if
the member executes a written security agreement and agrees to hold such collateral for
the benefit of the FHLBNY; or |
|
(2) |
|
Requires the member specifically to assign or place physical possession of such
collateral with the FHLBNY or its safekeeping agent. |
Beyond these provisions, Section 10(e) of the FHLBank Act affords any security interest granted by
a member to the FHLBNY priority over the claims or rights of any other party. The two exceptions
are claims that would be entitled to priority under otherwise applicable law or perfected security
interests. All member obligations with the Bank were fully collateralized throughout their entire
term. The total of collateral pledged to the Bank includes excess collateral pledged above the
Banks minimum collateral requirements. However, a Maximum Lendable Value is established to
ensure that the Bank has sufficient eligible collateral securing credit extensions. The Maximum
Lendable Value ranges from 90 percent to 70 percent for mortgage collateral and is applied to the
lesser of book or market value. For securities, it ranges from 97 percent to 67 percent and is
applied to the market value. There are not any Maximum Lendable Value ranges for deposit
collateral pledged. It is common for members to maintain excess collateral positions with the Bank
for future liquidity needs. Based on several factors (e.g. advance type, collateral type or member
financial condition) members are required to comply with specified collateral requirements,
including but not limited to a detailed listing of pledged mortgage collateral and/or delivery of
pledged collateral to the Bank or its designated collateral custodian(s). For example, all pledged
securities collateral must be delivered to the Banks nominee name at Citibank, N.A., its
securities safekeeping custodian. Mortgage collateral that is required to be in the Banks
possession is typically delivered to the Banks Jersey City, New Jersey facility. However, in
certain instances, delivery to a Bank approved custodian may be allowed. In both instances, the
members provide periodic listings updating the information of the mortgage collateral in
possession.
The following table summarizes pledged collateral in support of advances at March 31, 2011 and
December 31, 2010 (in thousands):
Collateral Supporting Advances to Members
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Collateral for Advances |
|
|
|
|
|
|
|
Mortgage |
|
|
Securities and |
|
|
|
|
|
|
Advances1 |
|
|
Loans2 |
|
|
Deposits2 |
|
|
Total2 |
|
|
|
March 31, 2011 |
|
$ |
72,300,271 |
|
|
$ |
100,212,737 |
|
|
$ |
40,990,062 |
|
|
$ |
141,202,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
$ |
76,939,539 |
|
|
$ |
99,348,492 |
|
|
$ |
42,461,442 |
|
|
$ |
141,809,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Par value |
|
2 |
|
Estimated market value |
The level of over-collateralization is on an aggregate basis and may not necessarily be
indicative of a similar level of over-collateralization on an individual member basis. At a
minimum, each member pledged sufficient collateral to adequately secure the members outstanding
obligation with the FHLBNY. In addition, most members maintain an excess amount of pledged
collateral with the FHLBNY to secure future liquidity needs.
18
The following table summarizes pledged collateral in support of other member obligations (other
than advances) at March 31, 2011 and December 31, 2010 (in thousands):
Collateral Supporting Member Obligations Other Than Advances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying Collateral for Other Obligations |
|
|
|
Other |
|
|
Mortgage |
|
|
Securities and |
|
|
|
|
|
|
Obligations1 |
|
|
Loans2 |
|
|
Deposits2 |
|
|
Total 2 |
|
|
March 31, 2011 |
|
$ |
2,386,148 |
|
|
$ |
7,035,254 |
|
|
$ |
193,866 |
|
|
$ |
7,229,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
$ |
2,057,501 |
|
|
$ |
5,772,835 |
|
|
$ |
213,620 |
|
|
$ |
5,986,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Standby financial letters of credit, derivatives and members credit
enhancement guarantee amount. (MPFCE) |
|
2 |
|
Estimated market value |
The outstanding member obligations consisted primarily of standby letters of credit, a small
amount of collateralized value of outstanding derivatives, and members credit enhancement
guarantee amount (MPFCE) on loans sold to the FHLBNY through the Mortgage Partnership Finance
program. The FHLBNYs underwriting and collateral requirements for securing Letters of Credit are
the same as its requirements for securing advances.
The following table shows the breakdown of collateral pledged by members between those that were
specifically listed and those in the physical possession or that of its safekeeping agent (in
thousands):
Location of Collateral Held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Market Values |
|
|
|
Collateral in |
|
|
Collateral |
|
|
Collateral |
|
|
Total |
|
|
|
Physical |
|
|
Specifically |
|
|
Pledged for |
|
|
Collateral |
|
|
|
Possession |
|
|
Listed |
|
|
AHP |
|
|
Received |
|
March 31, 2011 |
|
$ |
46,965,149 |
|
|
$ |
101,574,225 |
|
|
$ |
(107,455 |
) |
|
$ |
148,431,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
$ |
48,604,470 |
|
|
$ |
99,289,202 |
|
|
$ |
(97,283 |
) |
|
$ |
147,796,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total collateral pledged to the FHLBNY includes excess collateral pledged above the FHLBNYs
minimum collateral requirements. However, the amount reported under the Total Collateral Received
column excludes collateral pledged for AHP obligations.
In addition, the FHLBNY has a lien on each members investment in the capital stock of the FHLBNY.
Credit Risk. The FHLBNY has never experienced a credit loss on an advance. The management of the
Bank has policies and procedures in place to appropriately manage credit risk. There were no past
due advances and all advances were current for all periods in this report. Management does not
anticipate any credit losses, and accordingly, the Bank has not provided an allowance for credit
losses on advances. The Banks potential credit risk from advances is concentrated in commercial
banks, savings institutions and insurance companies.
Concentration of advances outstanding. Advances to the FHLBNYs top ten borrowing member
institutions are reported in Note 19, Segment Information and Concentration. The FHLBNY held
sufficient collateral to cover the advances to all of these institutions and it does not expect to
incur any credit losses.
19
Note 7. Mortgage Loans Held-for-Portfolio.
Mortgage Partnership Finance® program loans, or (MPF®), constitute the
majority of the mortgage loans held-for-portfolio. The MPF program involves investment by the
FHLBNY in mortgage loans that are purchased from its participating financial institutions (PFIs).
The members retain servicing rights and may credit-enhance the portion of the loans participated
to the FHLBNY. No intermediary trust is involved.
The following table presents information on mortgage loans held-for-portfolio (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
Real Estate*: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed medium-term single-family mortgages |
|
$ |
337,796 |
|
|
|
26.58 |
% |
|
$ |
342,081 |
|
|
|
27.05 |
% |
Fixed long-term single-family mortgages |
|
|
932,929 |
|
|
|
73.40 |
|
|
|
918,741 |
|
|
|
72.65 |
|
Multi-family mortgages |
|
|
279 |
|
|
|
0.02 |
|
|
|
3,799 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
1,271,004 |
|
|
|
100.00 |
% |
|
|
1,264,621 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized premiums |
|
|
11,524 |
|
|
|
|
|
|
|
11,333 |
|
|
|
|
|
Unamortized discounts |
|
|
(4,271 |
) |
|
|
|
|
|
|
(4,357 |
) |
|
|
|
|
Basis adjustment 1 |
|
|
(397 |
) |
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio |
|
|
1,277,860 |
|
|
|
|
|
|
|
1,271,564 |
|
|
|
|
|
Allowance for credit losses |
|
|
(6,969 |
) |
|
|
|
|
|
|
(5,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans held-for-portfolio after
allowance for credit losses |
|
$ |
1,270,891 |
|
|
|
|
|
|
$ |
1,265,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents fair value basis of open and closed delivery commitments. |
|
* |
|
Conventional mortgages constituted the majority of mortgage loans held-for-portfolio. |
Acquisitions were not significant and no loans were transferred to the loan-for-sale
category. From time-to-time, the Bank may request a PFI to purchase loans if the loan failed to
comply with the MPF loan standards and these have been de minimis in all periods in this report.
The FHLBNY and its members share the credit risk of MPF loans by structuring potential credit
losses into layers (See Note 1 Significant Accounting Policies and Estimates in the Banks most
recent Form 10-K filed on March 25, 2011). The first layer is typically 100 basis points but this
varies with the particular MPF program. The amount of the first layer, or First Loss Account
(FLA), was estimated as $12.3 million and $12.0 million at March 31, 2011 and December 31, 2010.
The FLA is not recorded or reported as a reserve for loan losses as it serves as a memorandum or
information account. The FHLBNY is responsible for absorbing the first layer. The second layer is
that amount of credit obligations that the PFI has taken on which will equate the loan to a
double-A rating. The FHLBNY pays a Credit Enhancement fee to the PFI for taking on this
obligation. The FHLBNY assumes all residual risk. Credit Enhancement fees accrued were $0.3
million and $0.4 million for the three months ended March 31, 2011 and 2010, and reported as a
reduction to mortgage loan interest income. The amount of charge-offs in each period reported was
insignificant and it was not necessary for the FHLBNY to recoup any losses from the PFIs.
Allowance methodology for loan losses. The Bank performs periodic reviews of individual impaired
mortgage loans within the MPF loan portfolio to identify the potential for losses inherent in the
portfolio and to determine the likelihood of collection of the principal and interest. Mortgage
loans that are past due 90 days or more past due or classified under regulatory criteria
(Sub-standard, doubtful or Loss) are evaluated separately on a loan level basis for impairment.
The FHLBNY bases its provision for credit losses on its estimate of probable credit losses inherent
in the impaired MPF loan. The FHLBNY computes the provision for credit losses without considering
the private mortgage insurance and other accompanying credit enhancement features (except the
First Loss Account) to provide credit assurance to the FHLBNY. If adversely classified, or past
due 90 days or more, reserves for conventional mortgage loans, except FHA- and VA-insured loans,
are analyzed under liquidation scenarios on a loan level basis, and identified losses are fully
reserved.
When a loan is foreclosed and the Bank takes possession of real estate, the Bank will charge to the
loan loss reserve account any excess of the carrying value of the loan over the net realizable
value of the foreclosed loan.
FHA- and VA- insured mortgage loans have minimal inherent credit risk. Risk of such loans
generally arises from servicers defaulting on their obligations. If adversely classified, the
FHLBNY will have reserves established only in the event of a default of a PFI, and reserves would
be based on the estimated costs to recover any uninsured portion of the MPF loan.
Classes of the MPF loan portfolio would be subject to disaggregation to the extent that it is
needed to understand the exposure to credit risk arising from these loans. The FHLBNY has
determined that no further disaggregation of portfolio segments is needed, other than the
methodology discussed above. The FHLBNY does not evaluate MPF loans collectively.
Allowance for loan losses have been recorded against the uninsured MPF loans. All other types of
mortgage-loans were insignificant and no allowances were necessary.
20
Allowance for loan losses
The following provides a roll-forward analysis of the allowance for credit losses 1 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Allowance for credit losses: |
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
5,760 |
|
|
$ |
4,498 |
|
Charge-offs |
|
|
(615 |
) |
|
|
(33 |
) |
Recoveries |
|
|
51 |
|
|
|
5 |
|
Provision for credit losses on mortgage loans |
|
|
1,773 |
|
|
|
709 |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
6,969 |
|
|
$ |
5,179 |
|
|
|
|
|
|
|
|
Ending balance, individually evaluated for impairment |
|
$ |
6,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded investment, end of period: |
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
|
$ |
27,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The Bank does not assess impairment on a collective basis. |
Non-performing loans
Non-accrual loans are reported in the table below. Mortgage loans are considered impaired when,
based on current information and events, it is probable that the FHLBNY will be unable to collect
all principal and interest amounts due according to the contractual terms of the mortgage loan
agreements. As of March 31, 2011 and December 31, 2010, the FHLBNY had no investment in impaired
mortgage loans, other than the non-accrual loans.
The following table contrasts Non-performing loans and 90 day past due loans1 to total
mortgage (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Mortgage loans, net of provisions for credit losses |
|
$ |
1,270,891 |
|
|
$ |
1,265,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing mortgage loans |
|
$ |
27,526 |
|
|
$ |
26,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insured MPF loans past due 90 days or more and still accruing interest |
|
$ |
526 |
|
|
$ |
574 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes loans classified as sub-standard, doubtful or loss under regulatory
criteria. |
The following table summarizes the recorded investment, the unpaid principal balance and
related allowance for impaired loans (individually assessed for impairment), and the average
recorded investment of impaired loans 1 & 2 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized2 |
|
With no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional MPF Loans1 |
|
$ |
4,218 |
|
|
$ |
4,201 |
|
|
$ |
|
|
|
$ |
4,598 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,218 |
|
|
$ |
4,201 |
|
|
$ |
|
|
|
$ |
4,598 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional MPF Loans1 |
|
$ |
23,308 |
|
|
$ |
23,324 |
|
|
$ |
6,969 |
|
|
$ |
22,861 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,308 |
|
|
$ |
23,324 |
|
|
$ |
6,969 |
|
|
$ |
22,861 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional MPF Loans1 |
|
$ |
27,526 |
|
|
$ |
27,525 |
|
|
$ |
6,969 |
|
|
$ |
27,459 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,526 |
|
|
$ |
27,525 |
|
|
$ |
6,969 |
|
|
$ |
27,459 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized2 |
|
With no related allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional MPF Loans1 |
|
$ |
5,876 |
|
|
$ |
5,856 |
|
|
$ |
|
|
|
$ |
4,867 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,876 |
|
|
$ |
5,856 |
|
|
$ |
|
|
|
$ |
4,867 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional MPF Loans1 |
|
$ |
20,909 |
|
|
$ |
20,925 |
|
|
$ |
5,760 |
|
|
$ |
18,402 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,909 |
|
|
$ |
20,925 |
|
|
$ |
5,760 |
|
|
$ |
18,402 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional MPF Loans1 |
|
$ |
26,785 |
|
|
$ |
26,781 |
|
|
$ |
5,760 |
|
|
$ |
23,269 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,785 |
|
|
$ |
26,781 |
|
|
$ |
5,760 |
|
|
$ |
23,269 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Based on analysis of the nature of risks of the Banks investments in MPF loans,
including its methodologies for identifying and measuring impairment, the management of the FHLBNY
has determined that presenting such loans as a single class is appropriate. |
|
2 |
|
Insured loans were not considered impaired. The Bank does not recognize interest
received as income from uninsured loans past due 90-days or greater. |
21
Mortgage loans Interest on Non-performing loans
The FHLBNYs interest contractually due and actually received for non-performing loans were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Interest contractually due 1 |
|
$ |
407 |
|
|
$ |
310 |
|
Interest actually received |
|
|
372 |
|
|
|
279 |
|
|
|
|
|
|
|
|
|
Shortfall |
|
$ |
35 |
|
|
$ |
31 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The Bank does not recognize interest received as income from uninsured loans past
due 90-days or greater. |
Recorded investments 1 in MPF loans that were past due loans and
real-estate owned are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Conventional |
|
|
Insured |
|
|
Other |
|
|
Conventional |
|
|
Insured |
|
|
Other |
|
|
|
MPF Loans |
|
|
Loans |
|
|
Loans |
|
|
MPF Loans |
|
|
Loans |
|
|
Loans |
|
Mortgage loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due 30 - 59 days |
|
$ |
22,773 |
|
|
$ |
767 |
|
|
$ |
|
|
|
$ |
19,651 |
|
|
$ |
768 |
|
|
$ |
|
|
Past due 60 - 89 days |
|
|
6,011 |
|
|
|
112 |
|
|
|
|
|
|
|
6,437 |
|
|
|
207 |
|
|
|
|
|
Past due 90 days or more |
|
|
27,526 |
|
|
|
530 |
|
|
|
|
|
|
|
26,785 |
|
|
|
577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total past due |
|
|
56,310 |
|
|
|
1,409 |
|
|
|
|
|
|
|
52,873 |
|
|
|
1,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current loans |
|
|
1,220,268 |
|
|
|
4,865 |
|
|
|
279 |
|
|
|
1,214,725 |
|
|
|
4,119 |
|
|
|
3,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans |
|
$ |
1,276,578 |
|
|
$ |
6,274 |
|
|
$ |
279 |
|
|
$ |
1,267,598 |
|
|
$ |
5,671 |
|
|
$ |
3,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other delinquency statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans in process of foreclosure,
included above |
|
$ |
16,976 |
|
|
$ |
325 |
|
|
$ |
|
|
|
$ |
14,615 |
|
|
$ |
284 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serious delinquency rate |
|
|
2.21 |
% |
|
|
8.40 |
% |
|
|
|
% |
|
|
2.14 |
% |
|
|
10.11 |
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serious delinquent loans total used in
calculation of serious delinquency rate |
|
$ |
28,214 |
|
|
$ |
527 |
|
|
$ |
|
|
|
$ |
27,112 |
|
|
$ |
573 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due 90 days or more and still
accruing interest |
|
$ |
|
|
|
$ |
527 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
573 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on non-accrual status |
|
$ |
27,526 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,785 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned |
|
$ |
670 |
|
|
|
|
|
|
|
|
|
|
$ |
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Recorded investments include accrued interest receivable and would not equal
reported carrying values. |
Certain comparative data were reclassified to conform to the presentation adopted as of March
31, 2011, and had no impact on the financial conditions, results of operations or cash flows since
the reclassification impacted disclosures only.
Note 8. Deposits.
The FHLBNY accepts demand, overnight and term deposits from its members. A member that
services mortgage loans may deposit in the FHLBNY funds collected in connection with the mortgage
loans, pending disbursement of such funds to the owners of the mortgage loans.
The following table summarizes term deposits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
Due in one year or less |
|
$ |
43,800 |
|
|
$ |
42,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total term deposits |
|
$ |
43,800 |
|
|
$ |
42,700 |
|
|
|
|
|
|
|
|
Note 9. Borrowings.
Securities sold under agreements to repurchase
The FHLBNY did not have any securities sold under agreement to repurchase as of March 31, 2011 and
December 31, 2010. Terms, amounts and outstanding balances of borrowings from other Federal Home
Loan Banks are described under Note 18 Related Party Transactions.
Note 10. Consolidated Obligations.
Consolidated obligations are the joint and several obligations of the FHLBanks and consist of
bonds and discount notes. The FHLBanks issue consolidated obligations through the Office of
Finance as their fiscal agent. Consolidated bonds are issued primarily to raise intermediate- and
long-term funds for the FHLBanks and are not subject to any statutory or regulatory limits on
maturity. Consolidated discount notes are issued primarily to raise short-term funds. Discount
notes sell at less than their face amount and are redeemed at par value when they mature.
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying
assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash;
secured advances; assets with an assessment or rating at least equivalent to the current assessment
or rating of the consolidated obligations; obligations, participations, mortgages, or other
securities of or issued by the United States or an agency of the United States; and securities in
which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is
located.
22
The FHLBNY met the qualifying unpledged asset requirements as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Percentage of unpledged qualifying assets to consolidated obligations |
|
|
110 |
% |
|
|
110 |
% |
|
|
|
|
|
|
|
The following summarizes consolidated obligations issued by the FHLBNY and outstanding at
March 31, 2011 and December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Consolidated obligation bonds-amortized cost |
|
$ |
68,050,887 |
|
|
$ |
71,114,070 |
|
Fair value basis adjustments |
|
|
473,369 |
|
|
|
622,593 |
|
Fair value basis on terminated hedges |
|
|
468 |
|
|
|
501 |
|
FVO-valuation adjustments and accrued interest |
|
|
5,257 |
|
|
|
5,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated obligation-bonds |
|
$ |
68,529,981 |
|
|
$ |
71,742,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes-amortized cost |
|
$ |
19,504,022 |
|
|
$ |
19,388,317 |
|
FVO-valuation adjustments
and remaining accretion |
|
|
3,137 |
|
|
|
3,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
obligation-discount notes |
|
$ |
19,507,159 |
|
|
$ |
19,391,452 |
|
|
|
|
|
|
|
|
Redemption Terms of consolidated obligation bonds
The following is a summary of consolidated bonds outstanding by year of maturity (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Percentage |
|
|
|
|
|
|
Average |
|
|
Percentage |
|
Maturity |
|
Amount |
|
|
Rate 1 |
|
|
of Total |
|
|
Amount |
|
|
Rate 1 |
|
|
of Total |
|
|
One year or less |
|
$ |
32,657,200 |
|
|
|
0.82 |
% |
|
|
48.09 |
% |
|
$ |
33,302,200 |
|
|
|
0.91 |
% |
|
|
46.91 |
% |
Over one year through two years |
|
|
13,108,225 |
|
|
|
1.38 |
|
|
|
19.30 |
|
|
|
17,037,375 |
|
|
|
1.12 |
|
|
|
24.00 |
|
Over two years through three years |
|
|
10,607,250 |
|
|
|
2.12 |
|
|
|
15.62 |
|
|
|
9,529,950 |
|
|
|
2.21 |
|
|
|
13.43 |
|
Over three years through four years |
|
|
4,060,080 |
|
|
|
2.65 |
|
|
|
5.98 |
|
|
|
3,689,355 |
|
|
|
2.82 |
|
|
|
5.20 |
|
Over four years through five years |
|
|
3,777,300 |
|
|
|
2.32 |
|
|
|
5.56 |
|
|
|
4,001,400 |
|
|
|
2.36 |
|
|
|
5.64 |
|
Over five years through six years |
|
|
573,700 |
|
|
|
3.22 |
|
|
|
0.85 |
|
|
|
462,500 |
|
|
|
3.34 |
|
|
|
0.65 |
|
Thereafter |
|
|
3,121,315 |
|
|
|
3.91 |
|
|
|
4.60 |
|
|
|
2,959,200 |
|
|
|
4.04 |
|
|
|
4.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,905,070 |
|
|
|
1.49 |
% |
|
|
100.00 |
% |
|
|
70,981,980 |
|
|
|
1.46 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
176,028 |
|
|
|
|
|
|
|
|
|
|
|
163,830 |
|
|
|
|
|
|
|
|
|
Bond discounts |
|
|
(30,211 |
) |
|
|
|
|
|
|
|
|
|
|
(31,740 |
) |
|
|
|
|
|
|
|
|
Fair value basis adjustments |
|
|
473,369 |
|
|
|
|
|
|
|
|
|
|
|
622,593 |
|
|
|
|
|
|
|
|
|
Fair value basis adjustments on terminated hedges |
|
|
468 |
|
|
|
|
|
|
|
|
|
|
|
501 |
|
|
|
|
|
|
|
|
|
FVO-valuation adjustments and accrued interest |
|
|
5,257 |
|
|
|
|
|
|
|
|
|
|
|
5,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68,529,981 |
|
|
|
|
|
|
|
|
|
|
$ |
71,742,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Weighted average rate represents the weighted average coupons of bonds, unadjusted for
swaps. The weighted average coupon of bonds outstanding at March 31, 2011 and December 31, 2010
represent contractual coupons payable to investors. |
Amortization of bond premiums and discounts resulted in net reduction of interest expense of
$12.7 million and $7.2 million for the three months ended March 31, 2011 and 2010. Amortization of
basis adjustments from terminated hedges were $1.0 million and $1.6 million, and were recorded as
an expense for the three months ended March 31, 2011 and 2010.
In the three months ended March 31, 2011, the Bank transferred and retired $478.6 million of
consolidated obligation bonds, resulting in a charge to Net income of $52.0 million. The transfers
and retirements were at negotiated market rates. There were no retirements and transfers of debt
in the same period in 2010.
23
Discount Notes
Consolidated discount notes are issued to raise short-term funds. Discount notes are consolidated
obligations with original maturities of up to one year. These notes are issued at less than their
face amount and redeemed at par when they mature. The FHLBNYs outstanding consolidated discount
notes were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Par value |
|
$ |
19,509,575 |
|
|
$ |
19,394,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
19,504,022 |
|
|
$ |
19,388,317 |
|
Fair value option valuation adjustments |
|
|
3,137 |
|
|
|
3,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19,507,159 |
|
|
$ |
19,391,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
0.11 |
% |
|
|
0.16 |
% |
|
|
|
|
|
|
|
Note 11. Capital Stock and Mandatorily Redeemable Capital Stock.
The FHLBanks, including the FHLBNY, have a cooperative structure. To access FHLBNYs products
and services, a financial institution must be approved for membership and purchase capital stock in
FHLBNY. A members stock requirement is generally based on its use of FHLBNY products, subject to
a minimum membership requirement, as prescribed by the FHLBank Act and the FHLBNY Capital Plan.
FHLBNY stock can be issued, exchanged, redeemed and repurchased only at its stated par value of
$100 per share. It is not publicly traded. An option to redeem capital stock that is greater than
a members minimum requirement is held by both the member and the FHLBNY.
Under the Gramm-Leach-Bliley Act of 1999 (GLB Act) and the Finance Agencys capital regulations,
the FHLBNYs Capital Plan offers two sub-classes of Class B capital stock, Class B1 and Class B2.
Class B1 stock is issued to meet membership stock purchase requirements. Class B2 stock is issued
to meet activity-based requirements. The FHLBNY requires member institutions to maintain Class B1
stock based on a percentage of the members mortgage-related assets and Class B2 stock-based on a
percentage of advances and acquired member assets outstanding with the FHLBank and certain
commitments outstanding with the FHLBank. Class B1 and Class B2 stockholders have the same voting
rights and dividend rates.
Members can redeem Class A stock by giving six months notice, and redeem Class B stock by giving
five years notice. Only permanent capital, defined as retained earnings and Class B stock,
satisfies the FHLBank risk-based capital requirement. In addition, the GLB Act specifies a 5.0
percent minimum leverage ratio based on total capital and a 4.0 percent minimum capital ratio. The
latter ratio does not include the 1.5 weighting factor applicable to the permanent capital used in
determining compliance with the 5.0 percent minimum leverage ratio.
Capital Plan under GLB Act
The FHLBNY implemented its current capital plan on December 1, 2005 through the issuance of Class B
stock. The conversion was considered a capital exchange and was accounted for at par value.
Members capital stock held immediately prior to the conversion date was automatically exchanged
for an equal amount of Class B Capital Stock, comprised of Membership Stock (referred to as
Subclass B1 Stock) and Activity-Based Stock (referred to as Subclass B2 Stock).
Any member that withdraws from membership must wait five years from the divestiture date for all
capital stock that is held as a condition of membership, unless the institution has cancelled its
notice of withdrawal prior to that date and before being readmitted to membership in any FHLBank.
Commencing in 2008, the Bank at its discretion may repay a non-members membership stock before the
end of the five-year waiting period.
The FHLBNY is subject to risk-based capital rules. Specifically, the FHLBNY is subject to three
capital requirements under its capital plan. First, the FHLBNY must maintain at all times
permanent capital in an amount at least equal to the sum of its credit risk, its market risk, and
operations risk capital requirements calculated in accordance with the FHLBNY policy, rules, and
regulations of the Finance Agency. Only permanent capital, defined as Class B stock and retained
earnings, satisfies this risk-based capital requirement. The Finance Agency may require the FHLBNY
to maintain an amount of permanent capital greater than what is required by the risk-based capital
requirements. In addition, the FHLBNY is required to maintain at least a 4.0% total
capital-to-asset ratio and at least a 5.0% leverage ratio at all times. The leverage ratio is
defined as the sum of permanent capital weighted 1.5 times and nonpermanent capital weighted 1.0
time divided by total assets. The FHLBNY was in compliance with the aforementioned capital rules
and requirements for all periods presented.
The FHLBNYs Capital Plan allows the Bank to recalculate the membership stock purchase requirement
any time after 30 days subsequent to a merger. The Capital Plan also permits the FHLBNY to use a
zero mortgage asset base in performing the calculation, which recognizes the fact that the
corporate entity that was once its member no longer exists. The Capital Plan would allow the
FHLBNY to determine that all of the membership stock formerly held by the member becomes excess
stock, which would give the FHLBNY the discretion, but not the obligation, to repurchase that stock
prior to the expiration of the five-year notice period.
24
Capital Standards
The GLB Act specifies that the FHLBanks must meet certain minimum capital standards, including the
maintenance of a minimum level of permanent capital sufficient to cover the credit, market, and
operations risks to which the FHLBanks are subject. The FHLBNY must maintain: (1) a total capital
ratio of at least 4.0%; (2) a leverage capital
ratio of at least 5.0%; and (3) permanent capital in an amount equal to or greater than the
risk-based capital requirement specified in the Finance Agencys regulations. The capital
requirements are described in greater detail below.
The total capital ratio is the ratio of the FHLBNYs total capital to its total assets. Total
capital is the sum of: (1) capital stock; (2) retained earnings; (3) the general allowance for
losses (if any); and (4) such other amounts (if any) that the Finance Agency may decide are
appropriate to include. Finance Agency regulations require that the FHLBNY maintain a minimum
total capital ratio of 4.0%.
The leverage ratio is the weighted ratio of total capital to total assets. For purposes of
determining this weighted average ratio, total capital is computed by multiplying the FHLBNYs
permanent capital by 1.5 and adding to this product all other components of total capital. Finance
Agency regulations require that the FHLBNY maintain a minimum leverage ratio of 5.0%.
The Finance Agency has established criteria for each of the following capital classifications,
based on the amount and type of capital held by an FHLBank: adequately capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized. This regulation
defines critical capital levels for the FHLBanks, establishes the criteria for each of the capital
classifications identified in the Housing Act and implements the Finance Agencys prompt correction
action authority over the FHLBanks. On July 20, 2009, the Finance Agency published Advisory
Bulletin 2009-AB-01, which identified preliminary FHLBank capital classifications as a form of
supervisory correspondence that should be treated by an FHLBank as unpublished information. Under
this Advisory Bulletin, preliminary FHLBank capital classifications should be publicly disclosed
only if the information is material to that FHLBanks financial condition and business operations,
provided that the disclosure is limited to a recital of the factual content of the unpublished
information. (See Note 14 to the audited financial statements filed on March 25, 2011).
The FHLBNY met the adequately capitalized classification, which is the highest rating, under the
Capital Rule. However, the Finance Agency has discretion to reclassify an FHLBank and to modify or
add to the corrective action requirements for a particular capital classification.
Risk-based capital
The following table summarizes the Banks risk-based capital ratios (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Required4 |
|
|
Actual |
|
|
Required4 |
|
|
Actual |
|
Regulatory capital requirements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital1 |
|
$ |
548,640 |
|
|
$ |
5,099,440 |
|
|
$ |
538,917 |
|
|
$ |
5,304,272 |
|
Total capital-to-asset ratio |
|
|
4.00 |
% |
|
|
5.27 |
% |
|
|
4.00 |
% |
|
|
5.30 |
% |
Total capital2 |
|
$ |
3,874,953 |
|
|
$ |
5,106,409 |
|
|
$ |
4,008,483 |
|
|
$ |
5,310,032 |
|
Leverage ratio |
|
|
5.00 |
% |
|
|
7.90 |
% |
|
|
5.00 |
% |
|
|
7.95 |
% |
Leverage capital3 |
|
$ |
4,843,692 |
|
|
$ |
7,656,129 |
|
|
$ |
5,010,604 |
|
|
$ |
7,962,168 |
|
|
|
|
1 |
|
Actual Risk-based capital is capital stock and retained earnings plus mandatorily
redeemable capital stock. Section 932.2 of the Finance Agencys regulations also refers to this
amount as Permanent Capital. |
|
2 |
|
Required Total capital is 4.0% of total assets. Actual Total capital is Actual
Risk-based capital plus allowance for credit losses. Does not include reserves for the Lehman
Brothers receivable which is a specific reserve. |
|
3 |
|
Actual Leverage capital is Actual Risk-based capital times 1.5 plus allowance for
loan losses. |
|
4 |
|
Required minimum. |
Mandatorily redeemable capital stock
Generally, the FHLBNYs capital stock is redeemable at the option of either the member or the
FHLBNY subject to certain conditions, including the provisions under the accounting guidance for
certain financial instruments with characteristics of both liabilities and equity.
In accordance with the accounting guidance for certain financial instruments with characteristics
of both liabilities and equity, the FHLBNY generally reclassifies the stock subject to redemption
from equity to a liability once a member: irrevocably exercises a written redemption right; gives
notice of intent to withdraw from membership; or attains non-member status by merger or
acquisition, charter termination, or involuntary termination from membership. Under such
circumstances, the member shares will then meet the definition of a mandatorily redeemable
financial instrument and are reclassified to a liability at fair value. Dividends on member shares
are accrued and also classified as a liability in the Statements of Condition and reported as
interest expense in the Statements of Income. The repayment of these mandatorily redeemable
financial instruments, once settled, is reflected as financing cash outflows in the Statements of
Cash Flows.
If a member cancels its notice of voluntary withdrawal, the FHLBNY will reclassify the mandatorily
redeemable capital stock from a liability to equity. After the reclassification, dividends on the
capital stock will no longer be classified as interest expense.
25
Anticipated redemptions of mandatorily redeemable capital stock were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
Redemption less than one year |
|
$ |
37,418 |
|
|
$ |
27,875 |
|
Redemption from one year to less than three years |
|
|
4,959 |
|
|
|
17,019 |
|
Redemption from three years to less than five years |
|
|
459 |
|
|
|
2,035 |
|
Redemption after five years or greater |
|
|
16,290 |
|
|
|
16,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
59,126 |
|
|
$ |
63,219 |
|
|
|
|
|
|
|
|
Anticipated redemptions assume the Bank will follow its current practice of daily redemption
of capital in excess of the amount required to support advances. Commencing January 1, 2008, the
Bank has exercised its discretionary authority provided under its Capital Plan to also redeem
non-members membership stock.
Voluntary withdrawal from membership As of March 31, 2011, one member had formally notified the
Bank of its intent to withdraw from membership and voluntarily redeem its capital stock. There was
one termination from membership due to insolvency for the three months ended March 31, 2011. In
the same period in 2010, two members became non-members due to insolvency.
Members acquired by non-members No member became a non-member during the three months ended
March 31, 2011 and in the same period in 2010. When a member is acquired by a non-member, the
FHLBNY reclassifies stock of the member to a liability on the day the members charter is
dissolved. Under existing practice, the FHLBNY repurchases stock held by former members if such
stock is considered excess and is no longer required to support outstanding advances. Membership
stock held by former members is reviewed and repurchased annually.
The following table provides roll-forward information with respect to changes in mandatorily
redeemable capital stock liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
Beginning balance |
|
$ |
63,219 |
|
|
$ |
126,294 |
|
Capital stock subject to mandatory redemption
reclassified from equity |
|
|
98 |
|
|
|
1,410 |
|
Redemption of mandatorily redeemable capital stock 1 |
|
|
(4,191 |
) |
|
|
(22,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
59,126 |
|
|
$ |
105,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest payable |
|
$ |
847 |
|
|
$ |
1,495 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Redemption includes repayment of excess stock.
(The annualized accrual rates were 5.80% for March 31, 2011 and 5.60% for March 31, 2010.) |
Note 12. Total Comprehensive Income.
Total comprehensive income is comprised of Net income and Accumulated other comprehensive
income (loss) (AOCI), which includes unrealized gains and losses on available-for-sale
securities, cash flow hedging activities, employee supplemental retirement plans, and the
non-credit portion of OTTI on HTM securities. Changes in AOCI and total comprehensive income were
as follows for the three months ended March 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-credit |
|
|
Reclassification |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Available- |
|
|
OTTI on HTM |
|
|
of Non-credit |
|
|
Cash |
|
|
Supplemental |
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
for-sale |
|
|
Securities, |
|
|
OTTI to |
|
|
Flow |
|
|
Retirement |
|
|
Comprehensive |
|
|
Net |
|
|
Comprehensive |
|
|
|
Securities |
|
|
Net of accretion |
|
|
Net Income |
|
|
Hedges |
|
|
Plans |
|
|
Income (Loss) |
|
|
Income |
|
|
Income |
|
Balance, December 31, 2009 |
|
|
(3,409 |
) |
|
|
(113,562 |
) |
|
|
2,992 |
|
|
|
(22,683 |
) |
|
|
(7,877 |
) |
|
|
(144,539 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
14,930 |
|
|
|
2,363 |
|
|
|
1,595 |
|
|
|
2,132 |
|
|
|
|
|
|
|
21,020 |
|
|
$ |
53,640 |
|
|
$ |
74,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
$ |
11,521 |
|
|
$ |
(111,199 |
) |
|
$ |
4,587 |
|
|
$ |
(20,551 |
) |
|
$ |
(7,877 |
) |
|
$ |
(123,519 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
22,965 |
|
|
|
(101,560 |
) |
|
|
8,634 |
|
|
|
(15,196 |
) |
|
|
(11,527 |
) |
|
|
(96,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
|
(7,986 |
) |
|
|
3,285 |
|
|
|
370 |
|
|
|
3,728 |
|
|
|
|
|
|
|
(603 |
) |
|
$ |
70,981 |
|
|
$ |
70,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
$ |
14,979 |
|
|
$ |
(98,275 |
) |
|
$ |
9,004 |
|
|
$ |
(11,468 |
) |
|
$ |
(11,527 |
) |
|
$ |
(97,287 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Note 13. Earnings Per Share of Capital.
The following table sets forth the computation of earnings per share (dollars in thousands
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
Net income |
|
$ |
70,981 |
|
|
$ |
53,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to stockholders |
|
$ |
70,981 |
|
|
$ |
53,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of capital |
|
|
44,733 |
|
|
|
50,372 |
|
Less: Mandatorily redeemable capital stock |
|
|
(592 |
) |
|
|
(1,084 |
) |
|
|
|
|
|
|
|
Average number of shares of capital used to calculate earnings per share |
|
|
44,141 |
|
|
|
49,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
1.61 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
Basic and diluted earnings per share of capital are the same. The FHLBNY has no dilutive
potential common shares or other common stock equivalents.
Note 14. Employee Retirement Plans.
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions (DB
Plan). The DB Plan is a tax-qualified multiple-employer defined benefit pension plan that covers
all officers and employees of the Bank. For accounting purposes, the DB Plan is a multi-employer
plan and does not segregate its assets, liabilities, or costs by participating employer. The Bank
also participates in the Pentegra Defined Contribution Plan for Financial Institutions, a
tax-qualified defined contribution plan. The Banks contributions are a matching contribution
equal to a percentage of voluntary employee contributions, subject to certain limitations.
In addition, the Bank maintains a Benefit Equalization Plan (BEP) that restores defined benefits
and contribution benefits to those employees who have had their qualified defined benefit and
defined contribution benefits limited by IRS regulations. The contribution component of the BEP is
a supplemental defined contribution plan. The plans liability consists of the accumulated
compensation deferrals and accrued interest on the deferrals. The BEP is an unfunded plan. The
Bank has a grantors trust to meet future benefit obligations and current payments to beneficiaries
in the supplemental pension plans. The Bank also offers a Retiree Medical Benefit Plan, which is a
postretirement health benefit plan. There are no funded plan assets that have been designated to
provide postretirement health benefits.
Retirement Plan Expenses Summary
The following table presents employee retirement plan expenses for the three months ended March 31,
2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
Defined Benefit Plan |
|
$ |
26,467 |
|
|
$ |
1,312 |
|
Benefit Equalization Plan (defined benefit) |
|
|
695 |
|
|
|
570 |
|
Defined Contribution Plan |
|
|
351 |
|
|
|
235 |
|
Postretirement Health Benefit Plan |
|
|
285 |
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retirement plan expenses |
|
$ |
27,798 |
|
|
$ |
2,398 |
|
|
|
|
|
|
|
|
In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit Plan to eliminate a
funding shortfall. Prior to the contribution, the DB Plans
adjusted funding target attainment percentage (AFTAP) was 79.93% (80%). The
AFTAP equals DB Plan assets divided by plan liabilities. Under the Pension Protection Act of 2006
(PPA), if the AFTAP in any future year is less than 80%, then the DB Plan will be restricted in
its ability to provided increased benefits and /or lump sum distributions. If the AFTAP in any
future year is less than 60%, then benefit accruals will be frozen. The contribution to the DB
Plan was charged to Net income for the three months ended March 31, 2011. Subsequent to the
contribution, the AFTAP was about 96%.
Components of the net periodic pension cost for the defined benefit component of the BEP, an
unfunded plan, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Service cost |
|
$ |
165 |
|
|
$ |
163 |
|
Interest cost |
|
|
323 |
|
|
|
279 |
|
Amortization of unrecognized prior service cost |
|
|
(13 |
) |
|
|
(17 |
) |
Amortization of unrecognized net loss |
|
|
220 |
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
695 |
|
|
$ |
570 |
|
|
|
|
|
|
|
|
27
Key assumptions and other information for the actuarial calculations to determine current
periods benefit obligations for the BEP plan were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Discount rate * |
|
|
5.35 |
% |
|
|
5.35 |
% |
Salary increases |
|
|
5.50 |
% |
|
|
5.50 |
% |
Amortization period (years) |
|
|
8 |
|
|
|
8 |
|
Benefits paid during the period |
|
$ |
(1,006 |
)** |
|
$ |
(515 |
) |
|
|
|
* |
|
The discount rate was based on the Citigroup Pension Liability Index at December 31, 2010 and
adjusted for duration. |
|
** |
|
Forecast for the entire year. |
Postretirement Health Benefit Plan
The FHLBNY has a postretirement health benefit plan for retirees called the Retiree Medical Benefit
Plan. Employees over the age of 55 are eligible provided they have completed ten years of service
after age 45.
Components of the net periodic benefit cost for the postretirement health benefit plan were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Service cost (benefits attributed to service during the period) |
|
$ |
180 |
|
|
$ |
157 |
|
Interest cost on accumulated postretirement health benefit obligation |
|
|
221 |
|
|
|
229 |
|
Amortization of loss |
|
|
67 |
|
|
|
78 |
|
Amortization of prior service cost/(credit) |
|
|
(183 |
) |
|
|
(183 |
) |
|
|
|
|
|
|
|
Net periodic postretirement health benefit cost |
|
$ |
285 |
|
|
$ |
281 |
|
|
|
|
|
|
|
|
The measurement date used to determine current periods benefit obligation was December 31,
2010.
Key assumptions and other information to determine current periods obligation for the postretirement
health benefit plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
5.35 |
% |
|
|
5.35 |
% |
|
|
|
|
|
|
|
|
|
Health care cost trend rates: |
|
|
|
|
|
|
|
|
Assumed for next year |
|
|
9.00 |
% |
|
|
9.00 |
% |
Pre 65 Ultimate rate |
|
|
5.00 |
% |
|
|
5.00 |
% |
Pre 65 Year that ultimate rate is reached |
|
|
2016 |
|
|
|
2016 |
|
Post 65 Ultimate rate |
|
|
6.00 |
% |
|
|
6.00 |
% |
Post 65 Year that ultimate rate is reached |
|
|
2016 |
|
|
|
2016 |
|
Alternative amortization methods used to amortize |
|
|
|
|
|
|
|
|
Prior service cost |
|
Straight - line |
|
|
Straight - line |
|
Unrecognized net (gain) or loss |
|
Straight - line |
|
|
Straight - line |
|
The discount rate was based on the Citigroup Pension Liability Index at December 31, 2010 and
adjusted for duration.
Note 15. Derivatives and Hedging Activities.
General The FHLBNY may enter into interest-rate swaps, swaptions, and interest-rate cap and
floor agreements to manage its exposure to changes in interest rates. The FHLBNY may also use
callable swaps to potentially adjust the effective maturity, repricing frequency, or option
characteristics of financial instruments to achieve risk management objectives. The FHLBNY uses
derivatives in three ways: by designating them as a fair value or cash flow hedge of an underlying
financial instrument or a forecasted transaction that qualifies for hedge accounting treatment; by
acting as an intermediary; or by designating the derivative as an asset-liability management hedge
(i.e., an economic hedge). For example, the FHLBNY uses derivatives in its overall interest-rate
risk management to adjust the interest-rate sensitivity of consolidated obligations to approximate
more closely the interest-rate sensitivity of assets (both advances and investments), and/or to
adjust the interest-rate sensitivity of advances, investments or mortgage loans to approximate more
closely the interest-rate sensitivity of liabilities. In addition to using derivatives to manage
mismatches of interest rates between assets and liabilities, the FHLBNY also uses derivatives: to
manage embedded options in assets and liabilities; to hedge the market value of existing assets and
liabilities and anticipated transactions; to hedge the duration risk of prepayable instruments; and
to reduce funding costs where possible.
In an economic hedge, a derivative hedges specific or non-specific underlying assets, liabilities
or firm commitments, but the hedge does not qualify for hedge accounting under the accounting
standards for derivatives and hedging; it is, however, an acceptable hedging strategy under the
FHLBNYs risk management program. These strategies also comply with the Finance Agencys
regulatory requirements prohibiting speculative use of derivatives. An economic hedge introduces
the potential for earnings variability due to the changes in fair value recorded on the derivatives
that are not offset by corresponding changes in the value of the economically hedged assets,
liabilities, or firm commitments. The FHLBNY will execute an interest rate swap to match the terms
of an asset or liability that is
elected under the Fair Value Option (FVO) and the swap is also considered as an economic hedge to
mitigate the volatility of the FVO designated asset or liability due to change in the full fair
value of the designated asset or liability. The FHLBNY elected to use the FVO for certain
consolidated obligation debt and executed interest rate swaps to offset the fair value changes of
the bonds.
28
The FHLBNY, consistent with Finance Agencys regulations, enters into derivatives to manage the
market risk exposures inherent in otherwise unhedged assets and funding positions. The FHLBNY
utilizes derivatives in the most cost efficient manner and may enter into derivatives as economic
hedges that do not qualify for hedge accounting under the accounting standards for derivatives and
hedging. As a result, when entering into such non-qualified hedges, the FHLBNY recognizes only the
change in fair value of these derivatives in Other income (loss) as a Net realized and unrealized
gain (loss) on derivatives and hedging activities with no offsetting fair value adjustments for the
hedged asset, liability, or firm commitment.
Hedging activities
Consolidated Obligations The FHLBNY manages the risk arising from changing market prices and
volatility of a consolidated obligation by matching the cash inflows on the derivative with the
cash outflow on the consolidated obligation. While consolidated obligations are the joint and
several obligations of the FHLBanks, one or more FHLBanks may individually serve as counterparties
to derivative agreements associated with specific debt issues. For instance, in a typical
transaction, fixed-rate consolidated obligations are issued for one or more FHLBanks, and each of
those FHLBanks could simultaneously enter into a matching derivative in which the counterparty pays
to the FHLBank fixed cash flows designed to mirror in timing and amount the cash outflows the
FHLBank pays on the consolidated obligations. When such transactions qualify for hedge accounting
they are treated as fair value hedges under the accounting standards for derivatives and hedging.
The FHLBNY has also elected to use the FVO for certain consolidated obligation bonds and discount
notes and these were measured under the accounting standards at fair value. To mitigate the volatility resulting from changes in fair values of bonds and
notes designated under the FVO, the Bank has also executed interest rate swaps as economic hedges
of the bonds and notes.
The FHLBNY has issued variable-rate consolidated obligations bonds indexed to 1 month-LIBOR, the
U.S. Prime rate, or Federal funds rate and simultaneously executed interest-rate swaps (basis
swaps) to hedge the basis risk of the variable rate debt to 3-month LIBOR, the FHLBNYs preferred
funding base. The interest rate basis swaps were accounted for as economic hedges of the
floating-rate bonds because the FHLBNY deemed that the operational cost of designating the hedges
under accounting standards for derivatives and hedge accounting would outweigh the accounting
benefits. The issuance of the consolidated obligation fixed-rate bonds to investors and the
execution of interest rate swaps typically results in cash flow pattern in which the FHLBNY has
effectively converted the bonds fixed cash flows to variable cash flows that closely match the
interest payments it receives on short-term or variable-rate advances. From time-to-time, this
intermediation between the capital and swap markets has permitted the FHLBNY to raise funds at a
lower cost than would otherwise be available through the issuance of simple fixed- or floating-rate
consolidated obligations in the capital markets. The FHLBNY does not issue consolidated
obligations denominated in currencies other than U.S. dollars.
Advances With a putable fixed-rate advance borrowed by a member, the FHLBNY may purchase from
the member a put option that enables the FHLBNY to effectively convert an advance from fixed-rate
to floating-rate by exercising the put option and terminating the advance at par on the
pre-determined put exercise dates. Typically, the FHLBNY will exercise the option in a rising
interest rate environment. The FHLBNY may hedge a putable advance by entering into a cancelable
interest rate swap in which the FHLBNY pays to the swap counterparty fixed-rate cash flows and
receives variable-rate cash flows. This type of hedge is treated as a fair value hedge under the
accounting standards for derivatives and hedging. The swap counterparty can cancel the swap on the
put date, which would normally occur in a rising rate environment, and the FHLBNY can terminate the
advance and extend additional credit to the member on new terms.
The optionality embedded in certain financial instruments held by the FHLBNY can create
interest-rate risk. When a member prepays an advance, the FHLBNY could suffer lower future income
if the principal portion of the prepaid advance were reinvested in lower-yielding assets that would
continue to be funded by higher-cost debt. To protect against this risk, the FHLBNY generally
charges a prepayment fee that makes it financially indifferent to a borrowers decision to prepay
an advance. When the Bank offers advances (other than short-term) that are prepayable by members
without a prepayment fee, it usually finances such advances with callable debt. The Bank has not
elected the FVO for any advances.
Mortgage Loans The FHLBNY invests in mortgage assets. The prepayment options embedded in
mortgage assets can result in extensions or reductions in the expected maturities of these
investments, depending on changes in estimated prepayment speeds. Net income would decline if the FHLBNY
replaced the mortgages with lower yielding assets and if the Banks higher funding costs were not
reduced concomitantly. Finance Agency regulations limit
this source of interest-rate risk by restricting the types of mortgage assets the Bank may own to
those with limited average life that changes under certain interest-rate shock scenarios and by
establishing limitations on duration of equity and changes in market value of equity. The FHLBNY
may manage against prepayment and duration risk by funding some mortgage assets with consolidated
obligations that have call features. In addition, the FHLBNY may use derivatives to manage the
prepayment and duration variability of mortgage assets.
The FHLBNY manages the interest rate and prepayment risks associated with mortgages through debt
issuance. The FHLBNY issues both callable and non-callable debt to achieve cash flow patterns and
liability durations similar to those expected on the mortgage loans. The FHLBNY analyzes the
duration, convexity and earnings risk of the mortgage portfolio on a regular basis under various
rate scenarios.
29
The Bank has not elected to use the FVO for any mortgage loans. No mortgage loan has been hedged
with a derivative. The Bank considers a delivery commitment to purchase mortgage loans to be a
derivative. See description below for the accounting of delivery commitments.
Firm Commitment Strategies Mortgage delivery commitments are considered derivatives under the
accounting standards for derivatives and hedging, and the FHLBNY accounts for them as freestanding
derivatives, recording the fair values of mortgage loan delivery commitments on the balance sheet
with an offset to current period earnings. Fair values were de minimis for all periods reported.
The FHLBNY may also hedge a firm commitment for a forward starting advance through the use of an
interest-rate swap. In this case, the swap will function as the hedging instrument for both the
firm commitment and the subsequent advance. The basis movement associated with the firm commitment
will be added to the basis of the advance at the time the commitment is terminated and the advance
is issued. The basis adjustment will then be amortized into interest income over the life of the
advance. If a hedged firm commitment no longer qualified as a fair value hedge, the hedge would be
terminated and net gains and losses would be recognized in current period earnings. There were no
material amounts of gains and losses recognized due to disqualification of firm commitment hedges
in any periods in this report.
Forward Settlements There were no forward settled securities that would settle outside the
shortest period of time for the settlement of such securities in any period ends in this report.
Anticipated Debt Issuance The FHLBNY enters into interest-rate swaps on the anticipated issuance
of debt to lock in a spread between the earning asset and the cost of funding. The swap is
terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to
earnings in the periods in which earnings are affected by the variability of the cash flows of the
debt that was issued.
In the three months ended March 31, 2011, the Bank entered into an interest rate swap agreement
with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest
payments on a 9-year discount note borrowing program expected to be accomplished by a series of
issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new
91-day discount notes over the next 9 years as each outstanding discount note matures. The interest
on the FHLBank discount note is expected to be highly correlated with 3-month LIBOR and will be
determined each time the note is issued. The interest rate swap requires a settlement every 91
days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following
each payment. The swap is expected to eliminate the risk of variability of cash flows for each
forecasted discount note issuances every 91 days. The FHLBNY performs prospective hedge
effectiveness analysis every 91 days and a retrospective hedge effectiveness analysis every
quarter. The fair value of the interest rate swap is recorded in AOCI and ineffectiveness, if any,
is measured using the hypothetical derivative method and recorded in earnings. The effective portion
remains in AOCI. The Bank monitors the credit standing of the derivative counterparty each quarter.
Intermediation To meet the hedging needs of its members, the FHLBNY acts as an intermediary
between the members and the other counterparties. This intermediation allows smaller members
access to the derivatives market. The derivatives used in intermediary activities do not qualify
for hedge accounting under the accounting standards for derivatives and hedging, and are separately
marked-to-market through earnings. The net impact of the accounting for these derivatives does not
significantly affect the operating results of the FHLBNY.
Derivative agreements in which the FHLBNY is an intermediary may arise when the FHLBNY: (1) enters
into offsetting derivatives with members and other counterparties to meet the needs of its members,
and (2) enters into derivatives to offset the economic effect of other derivative agreements that
are no longer designated to either advances, investments, or consolidated obligations. Fair values
of the swaps sold to members net of the fair values of swaps purchased from derivative
counterparties were not material at any periods in this report. Collateral with respect to
derivatives with member institutions includes collateral assigned to the FHLBNY as evidenced by a
written security agreement and held by the member institution for the benefit of the FHLBNY.
Economic hedges Economic hedges comprised primarily of: (1) Short- and medium-term interest rate
swaps that hedged the basis risk (Prime rate, Fed fund rate, and the 1-month LIBOR index) of
variable-rate bonds issued by the FHLBNY. These swaps were considered freestanding and changes in
the fair values of the swaps were recorded through income. The FHLBNY believes the operational
cost of designating the basis hedges in a qualifying hedge would outweigh the benefits of applying
hedge accounting. (2) Interest rate caps hedging balance sheet risk, primarily certain capped
floating-rate investment securities, were considered freestanding derivatives with fair value
changes recorded through Other income (loss) as a Net realized and unrealized gain or loss on
derivatives and hedging activities. (3) Interest rate swaps that had previously qualified as hedges
under the accounting standards for derivatives and hedging, but had been subsequently de-designated
from hedge accounting as they were assessed as being not highly effective hedges. (4) Interest rate
swaps executed to offset the fair value changes of bonds designated under the FVO.
The FHLBNY is not a derivatives dealer and does not trade derivatives for short-term profit.
Credit Risk The FHLBNY is subject to credit risk due to the risk of nonperformance by
counterparties to the derivative agreements. The FHLBNY transacts most of its derivatives with
major financial institutions. Some of these institutions or their affiliates buy, sell, and
distribute consolidated obligations. The FHLBNY is also subject to operational risks in the
execution and servicing of derivative transactions. The degree of counterparty risk on derivative
agreements depends on the extent to which master netting arrangements are included in such
contracts to mitigate the risk. The FHLBNY manages counterparty credit risk through credit
analysis and collateral requirements and by following the requirements set forth in Finance
Agencys regulations. In determining credit risk, the FHLBNY considers accrued interest
receivables and payables, and the legal right to offset assets and liabilities by counterparty.
30
The contractual or notional amount of derivatives reflects the involvement of the FHLBNY in the
various classes of financial instruments, but it does not measure the credit risk exposure of the
FHLBNY, and the maximum credit exposure of the FHLBNY is substantially less than the notional
amount. The maximum credit risk is the estimated cost of replacing favorable interest-rate swaps,
forward agreements, mandatory delivery contracts for mortgage loans, and purchased caps and floors
(derivatives) if the counterparty defaults and the related collateral, if any, is of insufficient
value to the FHLBNY.
The FHLBNY uses collateral agreements to mitigate counterparty credit risk in derivatives. When
the FHLBNY has more than one derivative transaction outstanding with a counterparty, and a legally
enforceable master netting agreement exists with the counterparty, the exposure (less collateral
held) represents the appropriate measure of credit risk. Substantially all derivative contracts
are subject to master netting agreements or other right of offset arrangements. At March 31, 2011
and December 31, 2010, the Banks credit exposure, representing derivatives in a fair value net
gain position, was approximately $25.0 million and $22.0 million after the recognition of any cash
collateral held by the FHLBNY. The credit exposures at March 31, 2011 and December 31, 2010
included $19.2 million and $6.1 million in net interest receivable.
Derivative counterparties are also exposed to credit losses resulting from potential nonperformance
risk of FHLBNY with respect to derivative contracts. Derivative counterparties exposure to the
FHLBNY is measured by derivatives in a fair value loss position from the FHLBNYs perspective,
which from the counterparties perspective is a gain. At March 31, 2011 and December 31, 2010,
derivatives in a net unrealized loss position, which represented the counterparties exposure to
the potential non-performance risk of the FHLBNY, were $839.7 million and $954.9 million after
deducting $1.9 billion and $2.7 billion of cash collateral pledged by the FHLBNY at those dates to
the exposed counterparties. The FHLBNY is exposed to the risk of derivative counterparties
defaulting on the terms of the derivative contracts and failing to return cash deposited with
counterparties. If such an event were to occur, the FHLBNY would be forced to replace derivatives
by executing similar derivative contracts with other counterparties. To the extent that the FHLBNY
receives cash from the replacement trades that is less than the amount of cash deposited with the
defaulting counterparty, the FHLBNYs cash pledged is exposed to credit risk. Derivative
counterparties holding the FHLBNYs cash as pledged collateral were rated Single-A or better at
March 31, 2011, and based on credit analyses and collateral requirements, the management of the
FHLBNY does not anticipate any credit losses on its derivative agreements.
Impact of
rating downgrade The FHLBNY transacts in derivative transactions directly with unaffiliated derivatives dealers
under ISDA agreements. Each of the ISDA agreements also includes Credit Support Amount (CSA)
provisions, which provide for collateral postings at various ratings and threshold levels and the
continuation of the FHLBNYs status as a government sponsored enterprise (GSE). The aggregate
fair value of the FHLBNYs derivative instruments that were in a net liability position at March
31, 2011 was approximately $839.7 million. Many of the CSA agreements stipulate that so long as the FHLBNY retains its GSE status, ratings
downgrades would not result in the posting of additional collateral. Other CSA agreements would
require the FHLBNY to post additional collateral based solely on an adverse change in the credit
rating of the FHLBNY. On the assumption that the FHLBNY will retain its status as a GSE, the FHLBNY estimates that at
March 31, 2011, a one-notch downgrade of FHLBNYs credit rating (currently is assigned Triple-A by
both Moodys and S&P) to Aa by Moodys Investor Services (Moodys) and AA by Standard & Poors
(S&P), would permit counterparties to make additional collateral calls of up to $440.3 million.
Additional collateral postings upon downgrade are estimated based on the factors in the individual
collateral posting provisions of the CSA with each counterparty and current exposure as of March
31, 2011.
31
The following table summarizes outstanding notional balances and estimated fair values of the
derivatives outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Notional Amount of |
|
|
|
|
|
|
Derivative |
|
|
|
Derivatives |
|
|
Derivative Assets |
|
|
Liabilities |
|
Fair value of derivatives instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated in hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps-fair value hedges |
|
$ |
91,722,304 |
|
|
$ |
853,120 |
|
|
$ |
3,590,893 |
|
Interest rate swaps-cash flow hedges |
|
|
205,000 |
|
|
|
2,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives in hedging instruments |
|
|
91,927,304 |
|
|
|
855,477 |
|
|
|
3,590,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
23,897,530 |
|
|
|
22,248 |
|
|
|
13,403 |
|
Interest rate caps or floors |
|
|
1,900,000 |
|
|
|
38,290 |
|
|
|
105 |
|
Mortgage delivery commitments |
|
|
25,197 |
|
|
|
73 |
|
|
|
29 |
|
Other* |
|
|
550,000 |
|
|
|
6,265 |
|
|
|
5,634 |
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
|
26,372,727 |
|
|
|
66,876 |
|
|
|
19,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives before netting and collateral adjustments |
|
$ |
118,300,031 |
|
|
|
922,353 |
|
|
|
3,610,064 |
|
|
|
|
|
|
|
|
|
|
|
Netting adjustments |
|
|
|
|
|
|
(897,389 |
) |
|
|
(897,389 |
) |
Cash collateral and related accrued interest |
|
|
|
|
|
|
|
|
|
|
(1,872,965 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total collateral and netting adjustments |
|
|
|
|
|
|
(897,389 |
) |
|
|
(2,770,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total reported on the Statements of Condition |
|
|
|
|
|
$ |
24,964 |
|
|
$ |
839,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Notional Amount of |
|
|
|
|
|
|
Derivative |
|
|
|
Derivatives |
|
|
Derivative Assets |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivatives instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated in hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps-fair value hedges |
|
$ |
93,840,813 |
|
|
$ |
944,807 |
|
|
$ |
4,661,102 |
|
Interest rate swaps-cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives in hedging instruments |
|
|
93,840,813 |
|
|
|
944,807 |
|
|
|
4,661,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
24,400,547 |
|
|
|
23,911 |
|
|
|
12,543 |
|
Interest rate caps or floors |
|
|
1,900,000 |
|
|
|
41,881 |
|
|
|
107 |
|
Mortgage delivery commitments |
|
|
29,993 |
|
|
|
9 |
|
|
|
523 |
|
Other* |
|
|
550,000 |
|
|
|
6,069 |
|
|
|
5,392 |
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
|
26,880,540 |
|
|
|
71,870 |
|
|
|
18,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives before netting and collateral adjustments |
|
$ |
120,721,353 |
|
|
|
1,016,677 |
|
|
|
4,679,667 |
|
|
|
|
|
|
|
|
|
|
|
Netting adjustments |
|
|
|
|
|
|
(994,667 |
) |
|
|
(994,667 |
) |
Cash collateral and related accrued interest |
|
|
|
|
|
|
|
|
|
|
(2,730,102 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total collateral and netting adjustments |
|
|
|
|
|
|
(994,667 |
) |
|
|
(3,724,769 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total reported on the Statements of Condition |
|
|
|
|
|
$ |
22,010 |
|
|
$ |
954,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other: Comprised of swaps intermediated for members. |
The categories Fair value, Mortgage delivery commitment, and Cash Flow hedges
represent derivative transactions in hedging relationships. If any such hedges do not qualify for
hedge accounting under the accounting standards for derivatives and hedging, they are classified as
Economic hedges. Changes in fair values of economic hedges are recorded through the income
statement without the offset of corresponding changes in the fair value of the hedged item.
Changes in fair values of qualifying derivative transactions designated in fair value hedges are
recorded through the income statement with the offset of corresponding changes in the fair values
of the hedged items. The effective portion of changes in the fair values of derivatives designated
in a qualifying cash flow hedge is recorded in Accumulated other comprehensive income (loss).
32
Earnings impact of derivatives and hedging activities
Net realized and unrealized gain (loss) on derivatives and hedging activities
The FHLBNY carries all derivative instruments on the Statements of Condition at fair value as
Derivative Assets and Derivative Liabilities. If derivatives meet the hedging criteria under hedge
accounting rules, including effectiveness measures, changes in fair value of the associated hedged
financial instrument attributable to the risk being hedged (benchmark interest-rate risk, which is
LIBOR for the FHLBNY) may also be recorded so that some or all of the unrealized fair value gains
or losses recognized on the derivatives are offset by corresponding unrealized gains or losses on
the associated hedged financial assets and liabilities. The net differential between fair value
changes of the derivatives and the hedged items represent hedge ineffectiveness. Hedge
ineffectiveness represents the amounts by which the changes in the fair value of the derivatives
differ from the changes in the fair values of the hedged items or the variability in the cash flows
of forecasted transactions. The net ineffectiveness from hedges that qualify under hedge
accounting rules are recorded as a Net realized and unrealized gain (loss) on derivatives and
hedging activities in Other income (loss) in the Statements of Income. If derivatives do not
qualify for the hedging criteria under hedge accounting rules, but are executed as economic hedges
of financial assets or liabilities under a FHLBNY-approved hedge strategy, only the fair value
changes of the derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives
and hedging activities in Other income (loss) in the Statements of Income.
When the FHLBNY elects to measure certain debt under the accounting designation for FVO, the Bank
will typically execute a derivative as an economic hedge of the debt. Fair value changes of the
derivatives are recorded as a Net realized and unrealized gain (loss) on derivatives and hedging
activities in Other income. Fair value changes of the debt designated under the FVO are also
recorded in Other income (loss) as an unrealized (loss) or gain from Instruments held at fair
value.
Components of hedging gains and losses from derivatives and hedging activities for the three months
ended March 31, 2011 are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives on |
|
|
|
Gain (Loss) on |
|
|
Gain (Loss) on |
|
|
Earnings |
|
|
Net Interest |
|
|
|
Derivative |
|
|
Hedged Item |
|
|
Impact |
|
|
Income 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
551,846 |
|
|
$ |
(495,509 |
) |
|
$ |
56,337 |
|
|
$ |
(440,823 |
) |
Consolidated obligations |
|
|
(146,891 |
) |
|
|
148,688 |
|
|
|
1,797 |
|
|
|
134,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to fair value
hedges |
|
|
404,955 |
|
|
|
(346,821 |
) |
|
|
58,134 |
|
|
|
(305,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
683 |
|
|
|
|
|
|
|
683 |
|
|
|
|
|
Consolidated obligations-bonds |
|
|
(211 |
) |
|
|
|
|
|
|
(211 |
) |
|
|
|
|
Consolidated obligations-discount notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member intermediation |
|
|
(46 |
) |
|
|
|
|
|
|
(46 |
) |
|
|
|
|
Balance sheet-macro hedges swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest-swaps |
|
|
2,703 |
|
|
|
|
|
|
|
2,703 |
|
|
|
|
|
Accrued interest-intermediation |
|
|
46 |
|
|
|
|
|
|
|
46 |
|
|
|
|
|
Caps and floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(18 |
) |
|
|
|
|
|
|
(18 |
) |
|
|
|
|
Balance sheet |
|
|
(3,589 |
) |
|
|
|
|
|
|
(3,589 |
) |
|
|
|
|
Accrued interest-options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage delivery commitments |
|
|
169 |
|
|
|
|
|
|
|
169 |
|
|
|
|
|
Swaps economically hedging
instruments designated under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
(2,594 |
) |
|
|
|
|
|
|
(2,594 |
) |
|
|
|
|
Consolidated obligations-discount notes |
|
|
(861 |
) |
|
|
|
|
|
|
(861 |
) |
|
|
|
|
Accrued interest on swaps |
|
|
10,154 |
|
|
|
|
|
|
|
10,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to derivatives not designated as hedging instruments |
|
|
6,436 |
|
|
|
|
|
|
|
6,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
411,391 |
|
|
$ |
(346,821 |
) |
|
$ |
64,570 |
|
|
$ |
(305,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Components of hedging gains and losses from derivatives and hedging activities for the three
months ended March 31, 2010 are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives on |
|
|
|
Gain (Loss) on |
|
|
Gain (Loss) on |
|
|
Earnings |
|
|
Net Interest |
|
|
|
Derivative |
|
|
Hedged Item |
|
|
Impact |
|
|
Income 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
(152,087 |
) |
|
$ |
152,706 |
|
|
$ |
619 |
|
|
$ |
(530,377 |
) |
Consolidated obligations |
|
|
52,236 |
|
|
|
(48,232 |
) |
|
|
4,004 |
|
|
|
172,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to fair value hedges |
|
|
(99,851 |
) |
|
|
104,474 |
|
|
|
4,623 |
|
|
|
(357,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(840 |
) |
|
|
|
|
|
|
(840 |
) |
|
|
|
|
Consolidated obligations-bonds |
|
|
(13,309 |
) |
|
|
|
|
|
|
(13,309 |
) |
|
|
|
|
Consolidated obligations-discount notes |
|
|
(2,332 |
) |
|
|
|
|
|
|
(2,332 |
) |
|
|
|
|
Member intermediation |
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
Balance sheet-macro hedges swaps |
|
|
173 |
|
|
|
|
|
|
|
173 |
|
|
|
|
|
Accrued interest-swaps |
|
|
29,469 |
|
|
|
|
|
|
|
29,469 |
|
|
|
|
|
Accrued interest-intermediation |
|
|
23 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
Caps and floors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
(289 |
) |
|
|
|
|
|
|
(289 |
) |
|
|
|
|
Balance sheet |
|
|
(30,427 |
) |
|
|
|
|
|
|
(30,427 |
) |
|
|
|
|
Accrued interest-options |
|
|
(1,989 |
) |
|
|
|
|
|
|
(1,989 |
) |
|
|
|
|
Mortgage delivery commitments |
|
|
149 |
|
|
|
|
|
|
|
149 |
|
|
|
|
|
Swaps economically hedging
instruments designated under FVO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
6,638 |
|
|
|
|
|
|
|
6,638 |
|
|
|
|
|
Consolidated obligations-discount notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest on swaps |
|
|
7,751 |
|
|
|
|
|
|
|
7,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) related to derivatives not designated as hedging instruments |
|
|
(4,986 |
) |
|
|
|
|
|
|
(4,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(104,837 |
) |
|
$ |
104,474 |
|
|
$ |
(363 |
) |
|
$ |
(357,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Represents interest expense and income generated from hedge qualifying
interest-rate swaps that were recorded with interest
income and expense of the hedged bonds, discount notes, and advances. |
Cash Flow hedges
For the three months ended March 31, 2011, the Bank entered into an interest rate swap agreement
with an unrelated swap dealer and designated it as a hedge of the variable quarterly interest
payments on a 9-year discount note borrowing program expected to be accomplished by a series of
issuances of $150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new
91-day discount notes over the next 9 years as each outstanding discount note matures. The interest
on the FHLBank discount note is expected to be highly correlated with 3-month LIBOR and will be
determined each time the note is issued. The interest rate swap requires a settlement every 91
days, and the variable rate, which is based on the 3-month LIBOR, is reset immediately following
each payment. The swap is expected to eliminate the risk of variability of in cash flows for each
forecasted discount note issuances every 91 days. The FHLBNY performs prospective hedge
effectiveness analysis every 91 days and a retrospective hedge effectiveness analysis every
quarter. The fair value of the interest rate swap is recorded in AOCI and ineffectiveness, if any,
is measured using the hypothetical derivative method and recorded in earnings. The effective portion
remains in AOCI and is reclassified into earnings in the same period during which the hedged
forecasted 91 day discount note expense affects earnings. The Bank monitors the credit standing of
the derivative counterparty each quarter. The notional amount of the interest rate swap outstanding
under this program was $150.0 million at March 31, 2011 and the fair value recorded in AOCI was an
unrealized gain of $1.9 million.
From time-to-time, the Bank executes interest rate swaps on the anticipated issuance of debt to
lock in a spread between the earning asset and the cost of funding. The hedges are accounted
under cash flow hedging rules and the effective portion of changes in the fair values of the swaps
is recorded in AOCI. The ineffective portion is recorded through net income. The swap is
terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to
earnings in the periods in which earnings are affected by the variability of the cash flows of the
debt that was issued. The maximum period of time that the Bank
typically hedges its exposure to the
variability in future cash flows for forecasted transactions is between three and six months. At
March 31, 2011, the Bank had open contracts of $55.0 million of swaps to hedge the anticipated
issuances of debt. The fair values of the open contracts recorded in AOCI was an unrealized gain
$0.4 million at March 31, 2011. There were no open contracts at December 31, 2010. For any periods
in this report, there were no material amounts that were reclassified into earnings as a result of
the discontinuance of cash flow hedges because it became probable that the original forecasted
transactions would not occur by the end of the originally specified time period or within a
two-month period thereafter.
34
The amounts in AOCI from terminated cash flow hedges representing net unrecognized losses were
$13.4 million and $15.2 million at March 31, 2011 and December 31, 2010. At March 31, 2011, it is
expected that over the next 12 months about $3.7 million of net losses recorded in AOCI will be
recognized as a yield adjustment to consolidated bond interest expense and a charge to earnings.
The effect of cash flow hedge related derivative instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2011 |
|
|
|
AOCI |
|
|
|
Gains/(Losses) |
|
|
|
|
|
|
|
Location: |
|
Amount |
|
|
Ineffectiveness |
|
|
|
Recognized |
|
|
Reclassified to |
|
Reclassified to |
|
|
Recognized in |
|
|
|
in AOCI 1, 2 |
|
|
Earnings 1 |
|
Earnings 1 |
|
|
Earnings |
|
The effect of cash flow hedge related to
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
|
|
|
Interest Income |
|
$ |
|
|
|
$ |
|
|
Consolidated obligations-bonds |
|
|
772 |
|
|
Interest Expense |
|
|
1,038 |
|
|
|
|
|
Consolidated obligations-discount notes |
|
|
1,918 |
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,690 |
|
|
|
|
$ |
1,038 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2010 |
|
|
|
AOCI |
|
|
|
Gains/(Losses) |
|
|
|
|
|
|
|
Location: |
|
Amount |
|
|
Ineffectiveness |
|
|
|
Recognized |
|
|
Reclassified to |
|
Reclassified to |
|
|
Recognized in |
|
|
|
in AOCI 1, 2 |
|
|
Earnings 1 |
|
Earnings 1 |
|
|
Earnings |
|
The effect of cash flow hedge related to
Interest rate swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
|
|
|
Interest Income |
|
$ |
|
|
|
$ |
|
|
Consolidated obligations-bonds |
|
|
392 |
|
|
Interest Expense |
|
|
1,740 |
|
|
|
|
|
Consolidated obligations-discount notes |
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
392 |
|
|
|
|
$ |
1,740 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Effective portion |
|
2 |
|
Represents basis adjustments from cash flow hedging
transactions recorded in AOCI. |
35
Note 16. Fair Values of Financial Instruments.
Items Measured at Fair Value on a Recurring Basis
The following table presents for each hierarchy level (see note below), the FHLBNYs assets and
liabilities that were measured at fair value on its Statements of Condition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Adjustments |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE/U.S. agency issued MBS |
|
$ |
3,708,872 |
|
|
$ |
|
|
|
$ |
3,708,872 |
|
|
$ |
|
|
|
$ |
|
|
Equity and bond funds |
|
|
10,152 |
|
|
|
|
|
|
|
10,152 |
|
|
|
|
|
|
|
|
|
Derivative assets(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
24,891 |
|
|
|
|
|
|
|
922,280 |
|
|
|
|
|
|
|
(897,389 |
) |
Mortgage delivery commitments |
|
|
73 |
|
|
|
|
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
3,743,988 |
|
|
$ |
|
|
|
$ |
4,641,377 |
|
|
$ |
|
|
|
$ |
(897,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes (to the extent FVO is elected) |
|
$ |
(731,892 |
) |
|
$ |
|
|
|
$ |
(731,892 |
) |
|
$ |
|
|
|
$ |
|
|
Bonds (to the extent FVO is elected) (b) |
|
|
(12,605,257 |
) |
|
|
|
|
|
|
(12,605,257 |
) |
|
|
|
|
|
|
|
|
Derivative liabilities(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
(839,681 |
) |
|
|
|
|
|
|
(3,610,035 |
) |
|
|
|
|
|
|
2,770,354 |
|
Mortgage delivery commitments |
|
|
(29 |
) |
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
(14,176,859 |
) |
|
$ |
|
|
|
$ |
(16,947,213 |
) |
|
$ |
|
|
|
$ |
2,770,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Adjustments |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GSE/U.S. agency issued MBS |
|
$ |
3,980,135 |
|
|
$ |
|
|
|
$ |
3,980,135 |
|
|
$ |
|
|
|
$ |
|
|
Equity and bond funds |
|
|
9,947 |
|
|
|
|
|
|
|
9,947 |
|
|
|
|
|
|
|
|
|
Derivative assets(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
22,001 |
|
|
|
|
|
|
|
1,016,668 |
|
|
|
|
|
|
|
(994,667 |
) |
Mortgage delivery commitments |
|
|
9 |
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
4,012,092 |
|
|
$ |
|
|
|
$ |
5,006,759 |
|
|
$ |
|
|
|
$ |
(994,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes (to the extent FVO is elected) |
|
$ |
(956,338 |
) |
|
$ |
|
|
|
$ |
(956,338 |
) |
|
$ |
|
|
|
$ |
|
|
Bonds (to the extent FVO is elected) (b) |
|
|
(14,281,463 |
) |
|
|
|
|
|
|
(14,281,463 |
) |
|
|
|
|
|
|
|
|
Derivative liabilities(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate derivatives |
|
|
(954,375 |
) |
|
|
|
|
|
|
(4,679,144 |
) |
|
|
|
|
|
|
3,724,769 |
|
Mortgage delivery commitments |
|
|
(523 |
) |
|
|
|
|
|
|
(523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
|
$ |
(16,192,699 |
) |
|
$ |
|
|
|
$ |
(19,917,468 |
) |
|
$ |
|
|
|
$ |
3,724,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 Quoted prices in active markets for identical assets. |
|
|
|
Level 2 Significant other observable inputs. |
|
|
|
Level 3 Significant unobservable inputs. |
|
(a) |
|
Derivative assets and liabilities were interest-rate
contracts, including de minimis amount
of mortgage delivery contracts. Based on an analysis of the nature of the risk, the presentation of derivatives as a single class is appropriate. |
|
(b) |
|
Based on its analysis of the nature of risks of the FHLBNYs debt measured at fair value, the
FHLBNY has determined that presenting the debt as a
single class is appropriate. |
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities would be measured at fair value on a nonrecurring basis. For the
FHLBNY, such items may include mortgage loans in foreclosure, or mortgage loans and
held-to-maturity securities written down to fair value, and real estate owned. At March 31, 2011
and December 31, 2010, the Bank measured and recorded the fair values of HTM securities deemed to
be OTTI on a nonrecurring basis; that is, they were not measured at fair value on an ongoing basis
but are subject to fair value adjustments in certain circumstances (for example, when there is
evidence of other-than-temporary impairment OTTI) in accordance with the guidance on recognition
and presentation of other-than-temporary impairment. At December 31, 2010, certain
held-to-maturity securities were deemed OTTI and their carrying values written down and recorded at
their fair values on a nonrecurring basis. There were no held-to-maturity securities that had to
be written down to their fair values at March 31, 2011.
36
The
following table summarizes the fair values of MBS for which a non-recurring 1 change
in fair value was recorded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Fair Value |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private-label residential mortgage-backed securities |
|
$ |
15,827 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,827 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
Certain OTTI securities were written down to their fair values ($15.8 million) when it was
determined that their carrying values prior to write-down ($16.3 million) were in excess of their
fair values. For Held-to-maturity securities that were previously credit impaired but no additional
credit impairment were deemed necessary at December 31, 2010, the securities were recorded at their
carrying values and not re-adjusted to their fair values. |
|
1 |
|
March 31, 2011 No non-recurring fair values were recorded. |
Estimated fair values Summary Tables
The carrying values and estimated fair values of the FHLBNYs financial instruments were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
Financial Instruments |
|
Value |
|
|
Fair Value |
|
|
Value |
|
|
Fair Value |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
2,953,801 |
|
|
$ |
2,953,801 |
|
|
$ |
660,873 |
|
|
$ |
660,873 |
|
Federal funds sold |
|
|
5,093,000 |
|
|
|
5,092,998 |
|
|
|
4,988,000 |
|
|
|
4,987,976 |
|
Available-for-sale securities |
|
|
3,719,024 |
|
|
|
3,719,024 |
|
|
|
3,990,082 |
|
|
|
3,990,082 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
8,042,487 |
|
|
|
8,152,867 |
|
|
|
7,761,192 |
|
|
|
7,898,300 |
|
Advances |
|
|
75,487,377 |
|
|
|
75,600,168 |
|
|
|
81,200,336 |
|
|
|
81,292,598 |
|
Mortgage loans held-for-portfolio, net |
|
|
1,270,891 |
|
|
|
1,325,914 |
|
|
|
1,265,804 |
|
|
|
1,328,787 |
|
Accrued interest receivable |
|
|
250,454 |
|
|
|
250,454 |
|
|
|
287,335 |
|
|
|
287,335 |
|
Derivative assets |
|
|
24,964 |
|
|
|
24,964 |
|
|
|
22,010 |
|
|
|
22,010 |
|
Other financial assets |
|
|
3,032 |
|
|
|
3,032 |
|
|
|
3,981 |
|
|
|
3,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
2,512,631 |
|
|
|
2,512,635 |
|
|
|
2,454,480 |
|
|
|
2,454,488 |
|
Consolidated obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
68,529,981 |
|
|
|
68,679,235 |
|
|
|
71,742,627 |
|
|
|
71,926,039 |
|
Discount notes |
|
|
19,507,159 |
|
|
|
19,507,547 |
|
|
|
19,391,452 |
|
|
|
19,391,743 |
|
Mandatorily redeemable capital stock |
|
|
59,126 |
|
|
|
59,126 |
|
|
|
63,219 |
|
|
|
63,219 |
|
Accrued interest payable |
|
|
230,109 |
|
|
|
230,109 |
|
|
|
197,266 |
|
|
|
197,266 |
|
Derivative liabilities |
|
|
839,710 |
|
|
|
839,710 |
|
|
|
954,898 |
|
|
|
954,898 |
|
Other financial liabilities |
|
|
52,178 |
|
|
|
52,178 |
|
|
|
58,818 |
|
|
|
58,818 |
|
37
Fair Value Option Disclosures
The following table summarizes the activity related to consolidated obligation bonds and discount
notes for which the Bank elected the Fair Value Option (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
Discount Notes * |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
March 31, 2010 |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Balance, beginning of the period |
|
$ |
(14,281,463 |
) |
|
$ |
(6,035,741 |
) |
|
$ |
(6,035,741 |
) |
|
$ |
(956,338 |
) |
|
$ |
|
|
New transactions elected
for fair value option |
|
|
(12,250,000 |
) |
|
|
(25,471,000 |
) |
|
|
(4,420,000 |
) |
|
|
|
|
|
|
(1,851,991 |
) |
Maturities and terminations |
|
|
13,926,000 |
|
|
|
17,235,000 |
|
|
|
3,685,000 |
|
|
|
224,448 |
|
|
|
898,788 |
|
Changes in fair value |
|
|
316 |
|
|
|
(2,556 |
) |
|
|
(8,419 |
) |
|
|
424 |
|
|
|
(787 |
) |
Changes in accrued
interest/unaccreted
balance |
|
|
(110 |
) |
|
|
(7,166 |
) |
|
|
(1,453 |
) |
|
|
(426 |
) |
|
|
(2,348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
(12,605,257 |
) |
|
$ |
(14,281,463 |
) |
|
$ |
(6,780,613 |
) |
|
$ |
(731,892 |
) |
|
$ |
(956,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Note: Discount notes were not designated under FVO at March 31, 2010 |
The following table presents the change in fair value included in the Statements of Income for the
consolidated obligation bonds and discount notes designated in accordance with the accounting
standards on the Fair Value Option for financial assets and liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Net Gain(Loss) |
|
|
Total Change in Fair |
|
|
|
|
|
|
Net Gain(Loss) |
|
|
Total Change in Fair |
|
|
|
|
|
|
|
Due to |
|
|
Value Included in |
|
|
|
|
|
|
Due to |
|
|
Value Included in |
|
|
|
Interest |
|
|
Changes in |
|
|
Current Period |
|
|
Interest |
|
|
Changes in |
|
|
Current Period |
|
|
|
Expense |
|
|
Fair Value |
|
|
Earnings |
|
|
Expense |
|
|
Fair Value |
|
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
(13,838 |
) |
|
$ |
316 |
|
|
$ |
(13,522 |
) |
|
$ |
(8,522 |
) |
|
$ |
(8,419 |
) |
|
$ |
(16,941 |
) |
Consolidated obligations-discount notes |
|
|
(981 |
) |
|
|
424 |
|
|
|
(557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(14,819 |
) |
|
$ |
740 |
|
|
$ |
(14,079 |
) |
|
$ |
(8,522 |
) |
|
$ |
(8,419 |
) |
|
$ |
(16,941 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table compares the aggregate fair value, and aggregate remaining contractual principal balance outstanding of consolidated
obligation bonds and discount notes for which the Fair Value Option has been elected (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2011 |
|
|
December
31, 2010 |
|
|
|
Principal |
|
|
|
|
|
|
Fair Value |
|
|
Principal |
|
|
|
|
|
|
Fair Value |
|
|
|
Balance |
|
|
Fair Value |
|
|
Over/(Under) |
|
|
Balance |
|
|
Fair Value |
|
|
Over/(Under) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
12,600,000 |
|
|
$ |
12,605,257 |
|
|
$ |
5,257 |
|
|
$ |
14,276,000 |
|
|
$ |
14,281,463 |
|
|
$ |
5,463 |
|
Consolidated obligations-discount notes |
|
|
728,755 |
|
|
|
731,892 |
|
|
|
3,137 |
|
|
|
953,203 |
|
|
|
956,338 |
|
|
|
3,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,328,755 |
|
|
$ |
13,337,149 |
|
|
$ |
8,394 |
|
|
$ |
15,229,203 |
|
|
$ |
15,237,801 |
|
|
$ |
8,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Estimated Fair Values of Financial Instruments
The fair value of a financial instrument that is an asset is defined as the price FHLBNY would
receive to sell an asset in an orderly transaction between market participants at the measurement
date. A financial liabilitys fair value is defined as the amount that would be paid to transfer
the liability to a new obligor, not the amount that would be paid to settle the liability with the
creditor. Where available, fair values are based on observable market prices or parameters, or
derived from such prices or parameters. Where observable prices are not available, valuation
models and inputs are utilized. These valuation techniques involve some level of management
estimation and judgment, the degree of which is dependent on the price transparency for the
instruments or markets and the instruments complexity.
The fair values of financial assets and liabilities reported in the tables above are discussed
below. The Fair Value Summary Tables above do not represent an estimate of the overall market
value of the FHLBNY as a going concern, which would take into account future business opportunities
and the net profitability of assets versus liabilities.
The estimated fair value amounts have been determined by the FHLBNY using procedures described
below. Because an active secondary market does not exist for a portion of the FHLBNYs financial
instruments, in certain cases, fair values are not subject to precise quantification or
verification and may change as economic and market factors and evaluation of those factors change.
Cash and due from banks
The estimated fair value approximates the recorded book balance.
Interest-bearing deposits and Federal funds sold
The FHLBNY determines estimated fair values of certain short-term investments by calculating the
present value of expected future cash flows from the investments. The discount rates used in these
calculations are the current coupons of investments with similar terms.
38
Investment securities
The Bank requests prices for all mortgage-backed securities from four third-party
vendors, and depending on the number of prices received for each security, selects a median or
average price as defined by the methodology. If four prices are received by the FHLBNY from the
pricing vendors, the average of the middle two prices is used; if three prices are received, the
middle price is used; if two prices are received, the average of the two prices is used; and if one
price is received, it is subject to additional validation.
The FHLBNY routinely performs a comparison analysis of pricing to understand pricing trends and to
establish a means of validating changes in pricing from period to period. The computed prices are
tested for reasonableness using tolerance thresholds. Prices within the established thresholds are
generally accepted unless strong evidence suggests that using the median pricing methodology
described above would not be appropriate. Preliminary estimated fair values that are outside the
tolerance thresholds, or that management believes may not be appropriate based on all available
information (including those limited instances in which only one price is received), are subject to
further analysis of all relevant facts and circumstances that a market participant would consider.
The Bank also runs pricing through prepayment models to test the reasonability of pricing relative
to changes in the implied prepayment options of the bonds. Separately, the Bank performs
comprehensive credit analysis, including the analysis of underlying cash flows and collateral.
The FHLBNY believes such methodologies valuation comparison, review of changes in valuation
parameters, and credit analysis have been designed to identify the effects of the credit crisis,
which has tended to reduce the availability of certain observable market pricing or has caused the
widening of the bid/offer spread of certain securities.
Four vendor prices were received for substantially all of the FHLBNYs MBS holdings and
substantially all of those prices fell within the specified thresholds. The relative proximity of
the prices received supported the FHLBNYs conclusion that the final computed prices were
reasonable estimates of fair value. While the FHLBNY adopted this common methodology, the fair
values of mortgage-backed investment securities are still estimated by FHLBNYs management which
remains responsible for the selection and application of its fair value methodology and determining
the reasonableness of assumptions and inputs used.
The four specialized pricing services use pricing models or quoted prices of securities with
similar characteristics. The valuation techniques used by pricing services employ cash flow
generators and option-adjusted spread models. Pricing spreads used as inputs in the models are
based on new issue and secondary market transactions if the securities are traded in sufficient
volumes in the secondary market. These pricing vendors typically employ valuation techniques that
incorporate benchmark yields, recent trades, dealer estimates, valuation models, benchmarking of
like securities, sector groupings, and/or matrix pricing, as appropriate for the security. Such
inputs into the pricing models employed by pricing services for the Banks investments are
market based and observable and are considered Level 2 of the fair value hierarchy.
The valuation of the FHLBNYs private-label securities, all designated as held-to-maturity, may
require pricing services to use significant inputs that are subjective and may be considered to be
Level 3 of the fair value hierarchy because of the current lack of significant market activity so
that the inputs may not be market based and observable. At the reporting dates in this Form 10-Q,
all private-label mortgage-backed securities were classified as held-to-maturity and were recorded
in the balance sheet at their carrying values. Carrying value of a security is the same as its
amortized cost unless the security is determined to be OTTI. In the period the security is
determined to be OTTI, its carrying value is generally adjusted down to its fair value.
In accordance with the amended guidance under the accounting standards for investments in debt and
equity securities, certain held-to-maturity private-label mortgage-backed securities were written
down to their fair value at December 31, 2010 (none at March 31, 2011) as a result of a recognition of
OTTI. For such HTM securities, their carrying values were recorded in the balance sheet at their
fair values. The fair values for such securities, classified on a nonrecurring basis, were considered to
be Level 3
financial instruments under the valuation hierarchy. This determination was made based on
managements view that the private-label instruments may not have an active market because of the
specific vintage of the securities as well as inherent conditions surrounding the trading of
private-label mortgage-backed securities.
The fair value of housing finance agency bonds is estimated by management using information
primarily from pricing services.
Advances
The fair values of advances are computed using standard option valuation models. The most
significant inputs to the valuation model are (1) consolidated obligation debt curve (the CO
Curve), published by the Office of Finance and available to the public, and (2) LIBOR swap curves
and volatilities. The Bank considers both these inputs to be market-based and observable as they
can be directly corroborated by market participants.
Mortgage loans
The fair value of MPF loans and loans in the inactive CMA programs are priced using a valuation
technique referred to as the market approach. Loans are aggregated into synthetic pass-through
securities based on product type, loan origination year, gross coupon and loan term. Thereafter,
these are compared against closing TBA prices extracted from independent sources. All
significant inputs to the loan valuations are market-based and observable.
39
Accrued interest receivable and payable
The estimated fair values approximate the recorded book value because of the relatively short
period of time between their origination and expected realization.
Derivative assets and liabilities
The FHLBNYs derivatives are traded in the over-the-counter market. Discounted cash flow analysis
is the primary methodology employed by the FHLBNYs valuation models to measure and record the fair
values of its interest rate swaps. The valuation technique is considered as an Income approach.
Interest rate caps and floors are valued under the Market approach. Interest rate swaps and
interest rate caps and floors are valued in industry-standard option-adjusted valuation models that
utilize market inputs, which can be corroborated by widely accepted third-party sources. The
Banks valuation model utilizes a modified Black-Karasinski model that assumes that rates are
distributed log normally. The log-normal model precludes interest rates turning negative in the
model computations. Significant market-based and observable inputs into the valuation model
include volatilities and interest rates. These derivative positions are classified within Level 2
of the valuation hierarchy, and include interest rate swaps, swaptions, interest rate caps and
floors, and mortgage delivery commitments.
The FHLBNY employs control processes to validate the fair value of its financial instruments,
including those derived from valuation models. These control processes are designed to ensure that
the values used for financial reporting are based on observable inputs wherever possible. In the
event that observable inputs are not available, the control processes are designed to ensure that
the valuation approach utilized is appropriate and consistently applied and that the assumptions
are reasonable. These control processes include reviews of the pricing models theoretical
soundness and appropriateness by specialists with relevant expertise who are independent from the
trading desks or personnel who were involved in the design and selection of model inputs.
Additionally, groups that are independent from the trading desk or personnel involved in the design
and selection of model inputs participate in the review and validation of the fair values generated
from the valuation model. The FHLBNY maintains an ongoing review of its valuation models and has a
formal model validation policy in addition to procedures for the approval and control of data
inputs.
The valuation of derivative assets and liabilities reflects the value of the instrument including
the values associated with counterparty risk and would also take into account the FHLBNYs own
credit standing and non-performance risk. The Bank has collateral agreements with all its
derivative counterparties and enforces collateral exchanges at least weekly. The computed fair
values of the FHLBNYs derivatives took into consideration the effects of legally enforceable
master netting agreements that allow the FHLBNY to settle positive and negative positions and
offset cash collateral with the same counterparty on a net basis. The Bank and each derivative
counterparty have bilateral collateral thresholds that take into account both the Banks and the
counterpartys credit ratings. As a result of these practices and agreements and the FHLBNYs
assessment of any change in its own credit spread, the Bank has concluded that the impact of the
credit differential between the Bank and its derivative counterparties was sufficiently mitigated
to an immaterial level such that no credit adjustments were deemed necessary to the recorded fair
value of derivative assets and derivative liabilities in the Statements of Conditions in this Form
10-Q.
Deposits
The FHLBNY determines estimated fair values of deposits by calculating the present value of
expected future cash flows from the deposits. The discount rates used in these calculations are
the current cost of deposits with similar terms.
Consolidated obligations
The FHLBNY estimates fair values based on the cost of raising comparable term debt and prices its
bonds and discount notes off of the current consolidated obligations market curve, which has a
daily active market. The fair values of consolidated obligation debt (bonds and discount notes)
are computed using a standard option valuation model using market based and observable inputs: (1)
consolidated obligation debt curve (the CO Curve) that is available to the public and published
by the Office of Finance, and (2) LIBOR curve and volatilities. Model adjustments that are not
observable are not considered significant.
Mandatorily redeemable capital stock
The FHLBNY considers the fair value of capital subject to mandatory redemption, as the redemption
value of the stock, which is generally par plus accrued estimated dividend. The FHLBNY has a
cooperative structure. Stock can only be acquired by members at par value and redeemed at par
value. Stock is not traded publicly and no market mechanism exists for the exchange of stock
outside the cooperative structure.
Note 17. Commitments and Contingencies.
Consolidated obligations Joint and several liability. Although the FHLBNY is primarily
liable only for its portion of consolidated obligations (i.e. those consolidated obligations issued
on its behalf and those that have been transferred/assumed from other FHLBanks), it is also jointly
and severally liable with the other FHLBanks for the payment of principal and interest on all of
the consolidated obligations issued by the FHLBanks.
The Finance Agency, in its discretion, may require any FHLBank to make principal or interest
payments due on any consolidated obligation, regardless of whether there has been a default by the
FHLBank having primary liability. To the extent that a FHLBank makes any payment on a consolidated
obligation on behalf of another FHLBank, the paying FHLBank shall be entitled to reimbursement from
the FHLBank with primary liability. The FHLBank with primary liability would have a corresponding
liability to reimburse the FHLBank providing assistance to the extent of such payment and other
associated costs (including interest to be determined by the Finance Agency). As
discussed more fully in Note 20 to the audited financial statements filed on March 25, 2011, the
FHLBNY does not believe that it will be called upon to pay the consolidated obligations of another
FHLBank in the future. Accordingly, the FHLBNY has not recognized a liability for its joint and
several obligations related to other FHLBanks consolidated obligations at March 31, 2011 and
December 31, 2010.
40
However, if the Finance Agency determines that the primarily liable FHLBank is unable to satisfy
its obligations, then the Finance Agency may allocate the outstanding liability among the remaining
FHLBanks on a pro rata basis in proportion to each FHLBanks participation in all consolidated
obligations outstanding, or on any other basis that the Finance Agency may determine. No FHLBank
has ever failed to make a payment on a consolidated obligation for which it was the primary
obligor; as a result, the regulatory provisions for directing other FHLBanks to make payments on
behalf of another FHLBank or allocating the liability among other FHLBanks have never been invoked.
Consequently, the Bank has no means to determine how the Finance Agency might allocate among the
other FHLBanks the obligations of a FHLBank that is unable to pay consolidated obligations for
which such FHLBank is primarily liable. In the event the Bank is holding a consolidated obligation
as an investment for which the Finance Agency would allocate liability among the 12 FHLBanks, the
Bank might be exposed to a credit loss to the extent of its share of the assigned liability for
that particular consolidated obligation. If principal or interest on any consolidated obligation
issued by the FHLBank System is not paid in full when due, the defaulting FHLBank may not pay
dividends to, or repurchase shares of stock from, any shareholder of the defaulting FHLBank. The
FHLBNY did not hold any consolidated obligations of another FHLBank as investments at March 31,
2011 and December 31, 2010.
If the principal or interest on any consolidated obligation issued on behalf of the FHLBNY is not
paid in full when due, the FHLBNY may not pay dividends to, or redeem or repurchase shares of stock
from, any member or non-member stockholder until the Finance Agency approves the FHLBNYs
consolidated obligation payment plan or another remedy, and until the FHLBNY pays all the interest
and principal currently due under all its consolidated obligations.
Because the FHLBNY is jointly and severally liable for debt issued by other FHLBanks, the FHLBNY
has not identified consolidated obligations outstanding by primary obligor. The FHLBNY does not
believe that the identification of particular banks as the primary obligors on these consolidated
obligations is relevant, because all FHLBanks are jointly and severally obligated to pay all
consolidated obligations. The identity of the primary obligor does not affect the FHLBNYs
investment decisions. The FHLBNYs ownership of consolidated obligations in which other FHLBanks
are primary obligors does not affect the FHLBNYs guarantee on consolidated obligations, as there
is no automatic legal right of offset. Even if the FHLBNY were to claim an offset, the FHLBNY
would still be jointly and severally obligated for any debt service shortfall caused by the
FHLBanks failure to pay. The par amounts of the outstanding consolidated obligations of all 12
FHLBanks were $0.8 trillion at March 31, 2011 and December 31, 2010.
Under the provisions of accounting standard for guarantees, the Bank would have been required to
recognize the fair value of the FHLBNYs joint and several liability for all the consolidated
obligations, as discussed above. However, the FHLBNY considers the joint and several liabilities
as similar to a related party guarantee, which meets the scope exception under the accounting
standard for guarantees. Accordingly, the FHLBNY has not recognized the fair value of a liability
for its joint and several obligations related to other FHLBanks consolidated obligations at March
31, 2011 and December 31, 2010.
Standby letters of credit are executed for a fee on behalf of members to facilitate residential
housing, community lending, and members asset/liability management or to provide liquidity. A
standby letter of credit is a financing arrangement between the FHLBNY and its member. Members
assume an unconditional obligation to reimburse the FHLBNY for value given by the FHLBNY to the
beneficiary under the terms of the standby letter of credit. The FHLBNY may, in its discretion,
permit the member to finance repayment of their obligation by receiving a collateralized advance.
Outstanding standby letters of credit were approximately $2.4 billion and $2.3 billion as of March
31, 2011 and December 31, 2010, and had original terms of up to 15 years, with a final expiration
in 2019. Standby letters of credit are fully collateralized. Unearned fees on standby letters of
credit are recorded in Other liabilities, and were not significant as of March 31, 2011 and
December 31, 2010. Based on managements credit analyses and collateral requirements, the FHLBNY
does not deem it necessary to have any provision for credit losses on these commitments and letters
of credit.
Under the MPF program, the Bank was unconditionally obligated to purchase $25.2 million and $30.0
million of mortgage loans at March 31, 2011 and December 31, 2010. Commitments are generally for
periods not to exceed 45 business days. Such commitments were recorded as derivatives at their
fair value under the accounting standards for derivatives and hedging. In addition, the FHLBNY had
entered into conditional agreements under Master Commitments with its members in the MPF program
to purchase mortgage loans in aggregate of $785.5 million and $630.6 million as of March 31, 2011
and December 31, 2010.
The FHLBNY executes derivatives with major financial institutions and enters into bilateral
collateral agreements. When counterparties are exposed, the Bank would typically pledge cash
collateral to mitigate the counterpartys credit exposure. To mitigate the counterparties
exposures, the FHLBNY deposited $1.9 billion and $2.7 billion in cash with derivative
counterparties as pledged collateral at March 31, 2011 and December 31, 2010, and these amounts
were reported as a deduction to Derivative liabilities.
The FHLBNY was also exposed to credit risk associated with outstanding derivative transactions
measured by the replacement cost of derivatives in net fair value gain positions of $25.0 million
and $22.0 million at March 31, 2011 and December 31, 2010. At March 31, 2011 and December 31,
2010, counterparties had deposited $71.1 million and $9.3 million in cash as collateral to mitigate
such an exposure.
41
Future benefit payments for the BEP and the postretirement health benefit plan are not
considered significant. The Bank expects to fund $9.9 million over the next 12 months towards the
Defined Benefit Plan, a non-contributory pension plan.
The following table summarizes contractual obligations and contingencies as of March 31, 2011 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Payments Due or Expiration Terms by Period |
|
|
|
Less Than |
|
|
One Year |
|
|
Greater Than Three |
|
|
Greater Than |
|
|
|
|
|
|
One Year |
|
|
to Three Years |
|
|
Years to Five Years |
|
|
Five Years |
|
|
Total |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds at par 1 |
|
$ |
32,657,200 |
|
|
$ |
23,715,475 |
|
|
$ |
7,837,380 |
|
|
$ |
3,695,015 |
|
|
$ |
67,905,070 |
|
Mandatorily redeemable capital stock 1 |
|
|
37,418 |
|
|
|
4,959 |
|
|
|
459 |
|
|
|
16,290 |
|
|
|
59,126 |
|
Premises (lease obligations) 2 |
|
|
3,060 |
|
|
|
5,997 |
|
|
|
4,674 |
|
|
|
3,506 |
|
|
|
17,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
32,697,678 |
|
|
|
23,726,431 |
|
|
|
7,842,513 |
|
|
|
3,714,811 |
|
|
|
67,981,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
2,366,166 |
|
|
|
19,359 |
|
|
|
41,777 |
|
|
|
3,861 |
|
|
|
2,431,163 |
|
Consolidated obligations-bonds/
discount notes traded not settled |
|
|
4,522,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,522,000 |
|
Commitments to fund additional advances |
|
|
16,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,000 |
|
Open delivery commitments (MPF) |
|
|
25,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other commitments |
|
|
6,929,363 |
|
|
|
19,359 |
|
|
|
41,777 |
|
|
|
3,861 |
|
|
|
6,994,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total obligations and commitments |
|
$ |
39,627,041 |
|
|
$ |
23,745,790 |
|
|
$ |
7,884,290 |
|
|
$ |
3,718,672 |
|
|
$ |
74,975,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Callable bonds contain exercise date or a series of exercise dates that may
result in a shorter redemption period. Mandatorily redeemable capital stock is categorized by the
dates at which the corresponding advances outstanding mature. Excess capital stock is redeemed at
that time, and hence, these dates better represent the related commitments than the put dates
associated with capital stock, under which stock may not be redeemed until the later of five years
from the date the member becomes a nonmember or the related advance matures. |
|
2 |
|
Immaterial amount of commitments for equipment leases are not included. |
The FHLBNY does not anticipate any credit losses from its off-balance sheet commitments and
accordingly no provision for losses is required.
Impact of the bankruptcy of Lehman Brothers
On September 15, 2008, Lehman Brothers Holdings, Inc. (LBHI), the parent company of Lehman
Brothers Special Financing Inc. (LBSF) and a guarantor of LBSFs obligations, filed for
protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court in the Southern District of New York. LBSF filed for protection under Chapter 11 in the same
court on October 3, 2008. LBSF was a counterparty to FHLBNY on multiple derivative transactions
under an International Swap Dealers Association, Inc. master agreement with a total notional amount
of $16.5 billion at the time of termination of the Banks derivative transactions with LBSF. The
net amount that was due to the Bank after giving effect to obligations that were due LBSF was
approximately $65 million. The FHLBNY filed proofs of claim in the amount of approximately $65
million as creditors of LBSF and LBHI in connection with the bankruptcy proceedings. The Bank fully
reserved the LBSF receivables as the bankruptcies of LBHI and LBSF make the timing and the amount
of any recovery uncertain.
As previously reported, the Bank received a Derivatives ADR Notice from LBSF dated July 23, 2010
making a Demand as of the date of the Notice of approximately $268 million owed to LBSF by the
Bank. Subsequently, in accordance with the Alternative Dispute Resolution Procedure Order entered
by the Bankruptcy Court dated September 17, 2009 (Order), the Bank responded to LBSF on August
23, 2010, denying LBSFs Demand. LBSF served a reply on September 7, 2010, effectively reiterating
its position. The mediation being conducted pursuant to the Order commenced on December 8, 2010 and
concluded without settlement on March 17, 2011. Pursuant to the Order, positions taken by the
parties in the ADR process are confidential.
While the Bank believes that LBSFs position is without merit, the amount the Bank actually
recovers or pays will ultimately be decided in the course of the bankruptcy proceedings.
Note 18. Related Party Transactions.
The FHLBNY is a cooperative and the members own almost all of the stock of the Bank. Any
stock not owned by members is held by former members. The majority of the members of the Board of
Directors of the FHLBNY are elected by and from the membership. The FHLBNY conducts its advances
business almost exclusively with members. The Bank considers its transactions with its members and
non-member stockholders as related party transactions in addition to transactions with other
FHLBanks, the Office of Finance, and the Finance Agency. All transactions with all members,
including those whose officers may serve as directors of the FHLBNY, are at terms that are no more
favorable than comparable transactions with other members. The FHLBNY may from time to time borrow
or sell overnight and term Federal funds at market rates to members.
42
Debt Transfers
For the three months ended March 31, 2011 and 2010, the Bank did not assume debt from another
FHLBank. The Bank transferred $150.0 million (par amounts) to another FHLBank for the three
months ended March 31, 2011. No bonds were transferred by the FHLBNY to another FHLBank in the
same period in 2010.
At trade date, the transferring bank notifies the Office of Finance of a change in primary obligor
for the transferred debt.
Advances sold or transferred
No advances were transferred/sold to the FHLBNY or from the FHLBNY to another FHLBank in any
periods in this report.
MPF Program
In the MPF program, the FHLBNY may participate out certain portions of its purchases of mortgage
loans from its members. Transactions are at market rates. Loans participated by the FHLBNY to the
FHLBank of Chicago was $75.0 million and $81.2 million at March 31, 2011 and December 31, 2010 on a
cumulative basis. Since 2004, the FHLBNY has not shared its purchases with the FHLBank of Chicago.
Fees paid to the FHLBank of Chicago were $0.1 million for the three months ended March 31, 2011
and 2010.
Mortgage-backed Securities
No mortgage-backed securities were acquired from other FHLBanks during the periods in this report.
Intermediation
Notional amounts of $550.0 million were outstanding both at March 31, 2011 and December 31, 2010 in
which the FHLBNY acted as an intermediary to sell derivatives to members. The notionals include
offsetting identical transactions with unrelated derivatives counterparties. Net fair value
exposures of these transactions at March 31, 2011 and December 31, 2010 were not material. The
intermediated derivative transactions were fully collateralized.
Loans to other Federal Home Loan Banks
In the three months ended March 31, 2011, FHLBNY extended one overnight loan for a total of $100.0
million to another FHLBank. For the three months ended March 31, 2010, the FHLBNY extended one
overnight loan for a total of $27.0 million to another FHLBank. Generally, loans made to other
FHLBanks are uncollateralized. Interest income from such loans was not significant in any period
in this report.
The following tables summarize outstanding balances with related parties at March 31, 2011 and
December 31, 2010, and transactions for the three months ended March 31, 2011 and 2010 (in
thousands):
Related Party: Outstanding Assets, Liabilities and Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Related |
|
|
Unrelated |
|
|
Related |
|
|
Unrelated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
|
|
|
$ |
2,953,801 |
|
|
$ |
|
|
|
$ |
660,873 |
|
Federal funds sold |
|
|
|
|
|
|
5,093,000 |
|
|
|
|
|
|
|
4,988,000 |
|
Available-for-sale securities |
|
|
|
|
|
|
3,719,024 |
|
|
|
|
|
|
|
3,990,082 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
8,042,487 |
|
|
|
|
|
|
|
7,761,192 |
|
Advances |
|
|
75,487,377 |
|
|
|
|
|
|
|
81,200,336 |
|
|
|
|
|
Mortgage loans 1 |
|
|
|
|
|
|
1,270,891 |
|
|
|
|
|
|
|
1,265,804 |
|
Accrued interest receivable |
|
|
220,672 |
|
|
|
29,782 |
|
|
|
256,617 |
|
|
|
30,718 |
|
Premises, software, and equipment |
|
|
|
|
|
|
14,919 |
|
|
|
|
|
|
|
14,932 |
|
Derivative assets 2 |
|
|
|
|
|
|
24,964 |
|
|
|
|
|
|
|
22,010 |
|
Other assets 3 |
|
|
175 |
|
|
|
16,742 |
|
|
|
113 |
|
|
|
21,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
75,708,224 |
|
|
$ |
21,165,610 |
|
|
$ |
81,457,066 |
|
|
$ |
18,755,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,512,631 |
|
|
$ |
|
|
|
$ |
2,454,480 |
|
|
$ |
|
|
Consolidated obligations |
|
|
|
|
|
|
88,037,140 |
|
|
|
|
|
|
|
91,134,079 |
|
Mandatorily redeemable capital stock |
|
|
59,126 |
|
|
|
|
|
|
|
63,219 |
|
|
|
|
|
Accrued interest payable |
|
|
5 |
|
|
|
230,104 |
|
|
|
10 |
|
|
|
197,256 |
|
Affordable Housing Program 4 |
|
|
135,131 |
|
|
|
|
|
|
|
138,365 |
|
|
|
|
|
Payable to REFCORP |
|
|
|
|
|
|
18,735 |
|
|
|
|
|
|
|
21,617 |
|
Derivative liabilities 2 |
|
|
|
|
|
|
839,710 |
|
|
|
|
|
|
|
954,898 |
|
Other liabilities 5 |
|
|
48,395 |
|
|
|
49,830 |
|
|
|
49,484 |
|
|
|
54,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
2,755,288 |
|
|
$ |
89,175,519 |
|
|
$ |
2,705,558 |
|
|
$ |
92,362,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
4,943,027 |
|
|
|
|
|
|
|
5,144,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital |
|
$ |
7,698,315 |
|
|
$ |
89,175,519 |
|
|
$ |
7,849,927 |
|
|
$ |
92,362,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes insignificant amounts of mortgage loans purchased from members of another FHLBank. |
|
2 |
|
Derivative assets and liabilities include insignificant fair values due to intermediation activities on behalf of members. |
|
3 |
|
Includes insignificant amounts of miscellaneous assets that are considered related party. |
|
4 |
|
Represents funds not yet disbursed to eligible programs. |
|
5 |
|
Related column includes member pass-through reserves at the Federal Reserve Bank. |
43
Related Party: Income and Expense transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
|
Related |
|
|
Unrelated |
|
|
Related |
|
|
Unrelated |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
158,696 |
|
|
$ |
|
|
|
$ |
149,640 |
|
|
$ |
|
|
Interest-bearing deposits 1 |
|
|
|
|
|
|
966 |
|
|
|
|
|
|
|
830 |
|
Federal funds sold |
|
|
|
|
|
|
2,546 |
|
|
|
|
|
|
|
1,543 |
|
Available-for-sale securities |
|
|
|
|
|
|
8,639 |
|
|
|
|
|
|
|
5,764 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
71,056 |
|
|
|
|
|
|
|
98,634 |
|
Mortgage loans 2 |
|
|
|
|
|
|
15,486 |
|
|
|
|
|
|
|
16,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
158,696 |
|
|
$ |
98,693 |
|
|
$ |
149,640 |
|
|
$ |
123,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations |
|
$ |
|
|
|
$ |
122,093 |
|
|
$ |
|
|
|
$ |
164,570 |
|
Deposits |
|
|
470 |
|
|
|
|
|
|
|
892 |
|
|
|
|
|
Mandatorily redeemable capital stock |
|
|
744 |
|
|
|
|
|
|
|
1,495 |
|
|
|
|
|
Cash collateral held and other
borrowings |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
1,214 |
|
|
$ |
122,102 |
|
|
$ |
2,387 |
|
|
$ |
164,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service fees and
other |
|
$ |
1,256 |
|
|
$ |
|
|
|
$ |
1,045 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes de minimis amounts of interest income from MPF service provider. |
|
2 |
|
Includes de minimis amounts of mortgage interest income from loans purchased from members of another FHLBank. |
Note 19. Segment Information and Concentration.
The FHLBNY manages its operations as a single business segment. Management and the FHLBNYs
Board of Directors review enterprise-wide financial information in order to make operating
decisions and assess performance. Advances to large members constitute a significant percentage of
FHLBNYs advance portfolio and its source of revenues.
The FHLBNY has a unique cooperative structure and is owned by member institutions located within a
defined geographic district. The Banks market is the same as its membership district This
includes New Jersey, New York, Puerto Rico, and the U.S. Virgin Islands. Institutions that are
members of the FHLBNY must have their principal places of business within this market, but may also
operate elsewhere.
The FHLBNYs primary business is making low-cost, collateralized loans, known as advances, to its
members. Members use advances as a source of funding to supplement their deposit-gathering
activities. As a cooperative, the FHLBNY prices advances at minimal net spreads above the cost of
its funding to deliver maximum value to members. Advances to large members constitute a
significant percentage of FHLBNYs advance portfolio and its source of revenues.
The FHLBNYs total assets and capital could significantly decrease if one or more large members
were to withdraw from membership or decrease business with the Bank. Members might withdraw or
reduce their business as a result of consolidating with an institution that was a member of another
FHLBank, or for other reasons. The FHLBNY has considered the impact of losing one or more large
members. In general, a withdrawing member would be required to repay all indebtedness prior to the
redemption of its capital stock. Under current conditions, the FHLBNY does not expect the loss of
a large member to impair its operations, since the FHLBank Act of 1999 does not allow the FHLBNY to
redeem the capital of an existing member if the redemption would cause the FHLBNY to fall below its
capital requirements. Consequently, the loss of a large member should not result in an inadequate
capital position for the FHLBNY. However, such an event could reduce the amount of capital that
the FHLBNY has available for continued growth. This could have various ramifications for the
FHLBNY, including a possible reduction in net income and dividends, and a lower return on capital
stock for remaining members.
44
The top ten advance holders at March 31, 2011, December 31, 2010 and March 31, 2010 and associated
interest income for the periods then ended are summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
Three Months |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
15,525,000 |
|
|
|
21.5 |
% |
|
$ |
158,066 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
12,155,000 |
|
|
|
16.8 |
|
|
|
67,672 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,293,162 |
|
|
|
10.1 |
|
|
|
75,256 |
|
MetLife Bank, N.A. |
|
Convent Station |
|
NJ |
|
|
4,284,500 |
|
|
|
5.9 |
|
|
|
19,864 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
2,500,000 |
|
|
|
3.5 |
|
|
|
15,027 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
2,257,875 |
|
|
|
3.1 |
|
|
|
4,505 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,194,500 |
|
|
|
3.0 |
|
|
|
23,987 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,099,000 |
|
|
|
2.9 |
|
|
|
19,141 |
|
Investors Savings Bank |
|
Short Hills |
|
NJ |
|
|
1,677,007 |
|
|
|
2.3 |
|
|
|
11,431 |
|
New York Life Insurance Company |
|
New York |
|
NY |
|
|
1,500,000 |
|
|
|
2.1 |
|
|
|
3,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
51,486,044 |
|
|
|
71.2 |
% |
|
$ |
398,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Officer of member bank also served on the Board of Directors of the FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
Twelve Months |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,025,000 |
|
|
|
22.1 |
% |
|
$ |
705,743 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
12,555,000 |
|
|
|
16.3 |
|
|
|
294,526 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,793,165 |
|
|
|
10.1 |
|
|
|
307,102 |
|
MetLife Bank, N.A. |
|
Convent Station |
|
NJ |
|
|
3,789,500 |
|
|
|
4.9 |
|
|
|
61,036 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
2,758,000 |
|
|
|
3.6 |
|
|
|
42,979 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
2,500,000 |
|
|
|
3.3 |
|
|
|
77,544 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,391,000 |
|
|
|
3.1 |
|
|
|
107,917 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,310,500 |
|
|
|
3.0 |
|
|
|
98,680 |
|
New York Life Insurance Company |
|
New York |
|
NY |
|
|
1,500,000 |
|
|
|
2.0 |
|
|
|
14,678 |
|
First Niagara Bank, National Association |
|
Buffalo |
|
NY |
|
|
1,473,493 |
|
|
|
1.9 |
|
|
|
24,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
54,095,658 |
|
|
|
70.3 |
% |
|
$ |
1,735,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At December 31, 2010, officer of member bank also served on the Board of Directors of the
FHLBNY. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
|
|
|
Par |
|
|
Total Par Value |
|
|
Three Months |
|
|
|
City |
|
State |
|
Advances |
|
|
of Advances |
|
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hudson City Savings Bank, FSB* |
|
Paramus |
|
NJ |
|
$ |
17,275,000 |
|
|
|
20.3 |
% |
|
$ |
174,759 |
|
Metropolitan Life Insurance Company |
|
New York |
|
NY |
|
|
13,555,000 |
|
|
|
15.9 |
|
|
|
72,407 |
|
New York Community Bank* |
|
Westbury |
|
NY |
|
|
7,343,172 |
|
|
|
8.6 |
|
|
|
75,913 |
|
Manufacturers and Traders Trust Company |
|
Buffalo |
|
NY |
|
|
4,755,523 |
|
|
|
5.6 |
|
|
|
11,754 |
|
The Prudential Insurance Co. of America |
|
Newark |
|
NJ |
|
|
3,500,000 |
|
|
|
4.1 |
|
|
|
21,577 |
|
Astoria Federal Savings and Loan Assn. |
|
Lake Success |
|
NY |
|
|
2,984,000 |
|
|
|
3.5 |
|
|
|
28,487 |
|
Valley National Bank |
|
Wayne |
|
NJ |
|
|
2,271,500 |
|
|
|
2.7 |
|
|
|
24,716 |
|
Doral Bank |
|
San Juan |
|
PR |
|
|
2,119,420 |
|
|
|
2.5 |
|
|
|
19,258 |
|
New York Life Insurance Company |
|
New York |
|
NY |
|
|
2,000,000 |
|
|
|
2.4 |
|
|
|
3,075 |
|
MetLife Bank, N.A. |
|
Convent Station |
|
NJ |
|
|
1,894,500 |
|
|
|
2.2 |
|
|
|
11,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
57,698,115 |
|
|
|
67.8 |
% |
|
$ |
443,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At March 31, 2010, officer of member bank also served on the Board of Directors of the
FHLBNY. |
45
The following table summarizes capital stock held by members who were beneficial owners of
more than 5 percent of the FHLBNYs outstanding capital stock as of March 31, 2011 and December 31,
2010 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Percent |
|
|
|
March 31, 2011 |
|
of Shares |
|
|
of Total |
|
Name of Beneficial Owner |
|
Principal Executive Office Address |
|
Owned |
|
|
Capital Stock |
|
|
Hudson City Savings Bank, FSB* |
|
West 80 Century Road, Paramus, NJ 07652 |
|
|
8,044 |
|
|
|
18.35 |
% |
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
|
6,855 |
|
|
|
15.64 |
|
New York Community Bank* |
|
615 Merrick Avenue, Westbury, NY 11590-6644 |
|
|
3,868 |
|
|
|
8.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,767 |
|
|
|
42.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Percent |
|
|
|
December 31, 2010 |
|
of Shares |
|
|
of Total |
|
Name of Beneficial Owner |
|
Principal Executive Office Address |
|
Owned |
|
|
Capital Stock |
|
|
Hudson City Savings Bank, FSB* |
|
West 80 Century Road, Paramus, NJ 07652 |
|
|
8,719 |
|
|
|
18.99 |
% |
Metropolitan Life Insurance Company |
|
200 Park Avenue, New York, NY 10166 |
|
|
7,035 |
|
|
|
15.32 |
|
New York Community Bank* |
|
615 Merrick Avenue, Westbury, NY 11590-6644 |
|
|
4,093 |
|
|
|
8.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,847 |
|
|
|
43.22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Officer of member bank also served on the Board of Directors of the FHLBNY. |
Note 20. Subsequent Events.
Under the final guidance issued by the FASB, subsequent events for the FHLBNY are events or
transactions that occur after the balance sheet date but before financial statements are issued.
There are two types of subsequent events:
a. The first type consists of events or transactions that provide additional evidence about
conditions that existed at the date of the balance sheet, including the estimates inherent in
the process of preparing financial statements (that is, recognized subsequent events).
b. The second type consists of events that provide evidence about conditions that did not
exist at the date of the balance sheet but arose after that date (that is, non-recognized
subsequent events).
The FHLBNY has evaluated subsequent events through the date of this report and no significant
subsequent events were identified.
46
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
Forward-Looking Statements
Statements contained in this report, including statements describing the objectives, projections,
estimates, or predictions of the Federal Home Loan Bank of New York (FHLBNY or Bank), may be
forward-looking statements. All statements other than statements of historical fact are
statements that could potentially be forward-looking statements. These statements may use
forward-looking terminology, such as anticipates, believes, could, estimates, may,
should, will, or other variations on these terms or their negatives. These statements may
involve matters pertaining to, but not limited to: projections regarding revenue, income, earnings,
capital expenditures, dividends, the capital structure and other financial items; statements of
plans or objectives for future operations; expectations of future economic performance; and
statements of assumptions underlying certain of the foregoing types of statements.
The Bank cautions that, by their nature, forward-looking statements involve risks or uncertainties,
and actual results could differ materially from those expressed or implied in these forward-looking
statements or could affect the extent to which a particular objective, projection, estimate, or
prediction is realized. As a result, readers are cautioned not to place undue reliance on such
statements, which are current only as of the date thereof. The Bank will not undertake to update
any forward-looking statement herein or that may be made from time to time on behalf of the Bank.
These forward-looking statements may not be realized due to a variety of risks and uncertainties
including, but not limited to risks and uncertainties relating to economic, competitive,
governmental, technological and marketing factors, as well as other factors identified in the
Banks filings with the Securities and Exchange Commission.
47
Organization of Managements Discussion and Analysis (MD&A).
The FHLBNYs MD&A is designed to provide information that will assist the readers in better
understanding the FHLBNYs financial statements, the changes in key items in the Banks financial
statements from year to year, the primary factors driving those changes as well as how accounting
principles affect the FHLBNYs financial statements. The MD&A is organized as follows:
|
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|
Page |
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49 |
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49 |
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|
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|
|
|
51 |
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|
55 |
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55 |
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56 |
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57 |
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58 |
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62 |
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64 |
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66 |
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|
68 |
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|
70 |
|
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|
|
|
|
|
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|
75 |
|
|
|
|
|
|
|
|
|
82 |
|
|
|
|
|
|
|
|
|
84 |
|
|
|
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
|
|
92 |
|
|
|
|
|
|
|
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|
96 |
|
|
|
|
|
|
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|
|
98 |
|
MD&A TABLE REFERENCE
|
|
|
|
|
|
|
Table(s) |
|
Description |
|
Page(s) |
|
1.1 1.15 |
|
Result of Operations |
|
|
55 66 |
|
2.1 2.2 |
|
Assessments |
|
|
67 |
|
3.1 3.3 |
|
Financial Condition |
|
|
68 69 |
|
4.1 4.10 |
|
Advances |
|
|
70 75 |
|
5.1 5.10 |
|
Investments |
|
|
76 81 |
|
6.1 6.3 |
|
Mortgage Loans |
|
|
82 83 |
|
7.1 7.10 |
|
Consolidated Obligations |
|
|
85 89 |
|
8.1 8.2 |
|
Capital |
|
|
90 91 |
|
9.1 9.5 |
|
Derivatives |
|
|
93 95 |
|
10.1 10.4 |
|
Liquidity |
|
|
96 98 |
|
48
Executive Overview
This overview of managements discussion and analysis highlights and selected information may
not contain all of the information that is important to readers of this Form 10-Q. For a more
complete understanding of events, trends and uncertainties, as well as the liquidity, capital,
credit and market risks, and critical accounting estimates, affecting the Federal Home Loan Bank of
New York (FHLBNY or Bank), this Form 10-Q should be read in its entirety and in conjunction
with the Banks most recent Form 10-K filed on March 25, 2011.
Cooperative business model. As a cooperative, the FHLBNY seeks to maintain a balance between its
public policy mission and its ability to provide adequate returns on the capital supplied by its
members. The FHLBNY achieves this balance by delivering low-cost financing to members to help them
meet the credit needs of their communities and by paying a dividend on the members capital stock.
Reflecting the FHLBNYs cooperative nature, the FHLBNYs financial strategies are designed to
enable the FHLBNY to expand and contract in response to member credit needs. The FHLBNY invests
its capital in high quality, short- and medium-term financial instruments. This strategy allows
the FHLBNY to maintain sufficient liquidity to satisfy member demand for short- and long-term
funds, repay maturing consolidated obligations, and meet other obligations. The dividends paid by
FHLBNY are largely the result of the FHLBNYs earnings on invested member capital, net earnings on
advances to members, mortgage loans and investments, offset in part by the FHLBNYs operating
expenses and assessments. FHLBNYs board of directors and management determine the pricing of
member credit and dividend policies based on the needs of its members and the cooperative.
Historical Perspective. The fundamental business of the FHLBNY is to provide member institutions
and housing associates with advances and other credit products in a wide range of maturities to
meet their needs. Congress created the FHLBanks in 1932 to improve the availability of funds to
support home ownership. Although the FHLBanks were initially capitalized with government funds,
members have provided all of the FHLBanks capital for over 50 years.
To accomplish its public purpose, the FHLBanks, including the FHLBNY, offer a readily available,
low-cost source of funds, called advances, to member institutions and certain housing associates.
Congress originally granted access to advances only to those institutions with the potential to
make and hold long-term, amortizing home mortgage loans. Such institutions were primarily
federally and state chartered savings and loan associations, cooperative banks, and state-chartered
savings banks (thrift institutions). FHLBanks and its member thrift institutions are an integral
part of the home mortgage financing system in the United States.
However, a variety of factors, including a severe recession, record-high interest rates, and
deregulation, resulted in significant financial losses for thrift institutions in the 1980s. In
response to the significant cost borne by the American taxpayer to resolve the failed thrift
institutions, Congress restructured the home mortgage financing system in 1989 with the passage of
the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Through this
legislation, Congress reaffirmed the housing finance mission of the FHLBanks and expanded
membership eligibility in the FHLBanks to include commercial banks and credit unions with a
commitment to housing finance.
Different FHLBank Business Strategies. Each FHLBank is operated as a separate entity with its own
management, employees and board of directors. In addition, all FHLBanks operate under the Finance
Agencys supervisory and regulatory framework. However, each FHLBanks management and board of
directors determine the best approach for meeting its business objectives and serving its members.
As such, the management and board of directors of each FHLBank have developed different business
strategies and initiatives to fulfill the FHLBanks mission, and they re-evaluate these strategies
and initiatives from time to time.
Business segment. The FHLBNY manages its operations as a single business segment. Advances to
members are the primary focus of the FHLBNYs operations and the principal factor that impacts its
operating results. The FHLBNY is exempt from ordinary federal, state, and local taxation except
for local real estate tax. It is required to make payments to Resolution Funding Corporation
(REFCORP), and set aside a percentage of its income towards an Affordable Housing Program
(AHP). Together they are referred to as assessments.
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest
income and margin. The FHLBNY has presented its results of operations in accordance with U.S.
generally accepted accounting principles. The FHLBNY has also presented certain information
regarding its Interest Income and Expense, Net Interest income and Net Interest spread that
combines interest expense on debt with net interest paid on interest rate swaps associated with
debt that were hedged on an economic basis. These are non-GAAP financial measures used by
management that the FHLBNY believes are useful to investors and members of the FHLBNY in
understanding the Banks operational performance and business and performance trends. Although the
FHLBNY believes these non-GAAP financial measures enhance investor and members understanding of
the Banks business and performance, these non-GAAP financial measures should not be considered an
alternative to GAAP. When discussing non-GAAP measures, the Bank has provided GAAP measures in
parallel.
2011 First Quarter Highlights
Results of Operations
The FHLBNY reported 2011 first quarter Net income of $71.0 million, or $1.61 per share compared
with Net income of $53.6 million or $1.09 per share in the same period in 2010. The return on
average equity, which is Net income divided by average Capital stock, Retained earnings, and
Accumulated other comprehensive income (loss) (AOCI), was 5.74% in the 2011 period compared with
3.99% in the same period in 2010.
49
Net income benefited from member initiated prepayments which generated $42.7 million in prepayment
fees and also contributed $52.0 million in derivative and hedging gains from termination of hedges
associated with the prepayments. Two prominent charges to Net income were executed to benefit and
protect future income. First, the Bank absorbed $51.7 million in charges when Management made
tactical changes to its funding strategy and extinguished (or transferred) certain high-coupon debt
to protect its future interest margin. Second, the Bank expensed $24.0 million to Compensation and
benefits in order to reduce the funding shortfall in the defined benefit pension plan. The payment
was made to reduce the likelihood of higher expenses in future periods and to avoid certain
restrictions to plan participants.
Net interest income was $134.1 million in the 2011 first quarter, up from $106.2 million in the
same period in 2010, an increase of 26.3%. Although margins on advances were weaker relative to the
2010 first quarter and the cost of funding remained above historical levels, the increase in Net interest income was
largely the result of $42.7 million in prepayment fees. In the
2011 first quarter, member-borrowers prepaid $7.1 billion of longer-term advances, in most
instances, taking advantage of prevailing lower interest rates to borrow anew at the lower
prevailing coupons. The FHLBNY records prepayment fees in interest income. Almost all of the
prepaid advances were hedged, and as a result the amounts recorded as prepayment fees were after
recovering the recorded fair values of those advances.
Lower margin was caused by run-off of higher yielding advances and mortgage-backed securities
(MBS). Also, the Banks floating rate GSE-issued MBS are indexed to 3-month LIBOR which has
remained at low levels in the 2011 first quarter. GSE-issued floating-rate MBS is a very
significant component of the FHLBNYs investment portfolio.
The low LIBOR rate has also tended to compress margins. The FHLBNY attempts to execute interest
rate swaps to convert fixed-rate debt to a sub-LIBOR spread, but when
the LIBOR rate is low, there is
very little room for achieving a spread that would be ascribed to the triple-A rating of the
FHLBank debt. As a result, on a swapped funding level, the low LIBOR rate has effectively driven
up the cost of FHLBank consolidated obligation bonds and this has narrowed the FHLBNYs margins.
Yields sought by investors for longer-term FHLBank bonds still remain expensive and the pricing is
not economical for the FHLBNY to offer longer-term advances even if demand exists. The FHLBank
discount notes, which have maturities from overnight to one year, were also priced at very narrow
sub-LIBOR spreads. The FHLBNY has continued to use discount notes as an important funding tool
because of their ease of issuance and continued investor demand at sub-LIBOR spreads.
Credit related OTTI was insignificant in the 2011 first quarter, only $0.4 million compared with
$3.4 million in the same period in 2010. No new MBS were impaired and the OTTI charges were
primarily as a result of additional credit losses recognized on previously impaired private-label
MBS because of slight deterioration in the performance parameters of the securities. The FHLBNY
makes quarterly cash flow assessments of the expected credit performance of its entire portfolio of
private-label MBS.
The FHLBNY recorded $64.6 million of net gains from derivative and hedging activities in the 2011
first quarter, largely benefitting from the recognition of realized gains from termination of
hedges contemporaneous with the prepayments. Such hedge terminations contributed $52.0 million in
net realized gains. In general, the FHLBNY holds derivatives and associated hedged instruments and
consolidated obligation debt under the Fair Value Option accounting (FVO) to their maturity,
call, or put dates. When such financial instruments are held to their contractual maturity (or
put/call dates), nearly all of the cumulative net fair value gains and losses that are recorded as
unrealized will generally reverse over time, and fair value changes will sum to zero over time. In
limited instances, when the FHLBNY terminates these instruments prior to maturity or prior to call
or put dates (such as when members request prepayments of their borrowed advances), it would result
in a realized gain or loss.
Concurrent with the significant member initiated prepayments, the Bank also took the opportunity to
extinguish and transfer $478.6 million of certain high-coupon debt at a cost that exceeded the
carrying values of the debt by
$51.7 million. The Bank will replace such debt by issuing new debt at the lower prevailing
interest rate for similar maturities. This is expected to benefit margin in future periods.
Operating Expenses of the FHLBNY were $7.5 million in the 2011 first quarter, up from $6.3 million
in the same period in 2010.
Compensation and benefits rose to $38.9 million in the 2011 period, up from $12.9 million in the
same period in 2010. In March 2011, the FHLBNY contributed $24.0 million to its Defined Benefit
Plan to eliminate a funding shortfall and the amount was charged to Compensation and benefits.
Affordable
Housing Program (AHP) assessment set aside from income
totaled $7.9 million in the 2011
first quarter, up from $6.1 million in the same period in 2010. REFCORP assessment payments
totaled $17.7 million in the 2011 first quarter, up from $13.4 million in the same period in 2010.
Assessments are calculated on Net income before assessments, and the increases were due to the
increase in Net income in the 2011 first quarter as compared to the same period in 2010. Based on
projected payments by the 12 FHLBanks through the second quarter of 2011, it is likely that the
FHLBanks will have satisfied its obligation to REFCORP and further payments would not be necessary
thereafter. In anticipation of the termination of their REFCORP obligation, the FHLBanks have
reached an agreement to set aside, once the obligation has ended, amounts that would have otherwise
been paid to REFCORP as restricted retained earnings, with the objective of increasing the earnings
reserves of the FHLBanks and enhancing the safety and soundness of the FHLBank system.
Cash dividends of $1.46 per share of capital stock (5.8% annualized return on capital stock) were
paid to stockholders in the 2011 first quarter, up from $1.41, or 5.6% per share, paid in the same
period in 2010.
50
Financial Condition
Net cash generated from operating activities was higher than Net income and the FHLBNYs liquidity
position remains in compliance with all regulatory requirements and Management does not foresee any
changes to that position. Management also believes cash flows from operations, available cash
balances and the FHLBNYs ability to generate cash through the issuance of consolidated obligation
bonds and discount notes are sufficient to fund the FHLBNYs operating liquidity needs.
The FHLBNY continued to experience balance sheet contraction, as both its lending and funding
steadily declined at March 31, 2011, a continuing trend through each of the quarters in 2010.
Principal amounts of Advances to member banks declined to $72.3 billion at March 31, 2011 compared
to $76.9 billion at December 31, 2010. The decline has occurred gradually as member banks may have
taken advantage of the improved availability of alternate funding sources such as deposits and
senior unsecured borrowings in a more liquid market. Decline in demand for advances may also be
due to lukewarm loan demand from members own customers due to weak economic conditions.
Aside from advances, the FHLBNYs primary earning assets are its investment portfolios, comprising
mainly of GSE and U.S. agency-issued mortgage-backed securities (MBS), and state and local government
housing agency bonds. Investments in MBS and housing agency securities, which are classified as
held-to-maturity and available-for-sale, totaled $11.8 billion, or 12.1% of Total assets at March
31, 2011, compared to $11.8 billion, or 11.7% of Total assets at December 31, 2010. GSE- and
agency-issued MBS were 92.9% of the total balance sheet carrying value of all investments in MBS.
Only $0.8 billion of private-label MBS remained outstanding. GSE-issued investment security values
have improved as liquidity has gradually returned to the market, and fair values were generally in
an unrealized gain position.
The FHLBNYs capital remains strong. At March 31, 2011, actual risk-based capital was $5.1
billion, compared to required risk based capital of $0.5 billion. To support $96.9 billion of
Total assets at March 31, 2011, the required minimum regulatory capital was $3.9 billion, or 4.0
percent of assets. The FHLBNYs actual regulatory capital was $5.1 billion, exceeding required
capital by $1.2 billion at March 31, 2011. Aggregate capital ratio was at 5.3 percent, or 1.3
percent more than the 4.0 percent regulatory minimum. The FHLBNY has prudently retained capital
through the period of credit turmoil. Retained earnings, excluding losses in AOCI, have grown to
$716.7 million at March 31, 2011. Losses in AOCI totaled $97.3 million compared to $96.7 million
at December 31, 2010.
Business Outlook
The following forward-looking statements are based upon the current beliefs and expectations
of the FHLBNYs management and are subject to risks and uncertainties which could cause the
FHLBNYs actual results to differ materially from those set forth in such forward-looking
statements.
The FHLBNY expects its full year 2011 earnings to decline to below the 2010 earnings, because of
lower net interest margins on the Banks core assets, primarily its advances and investments in
mortgage-backed securities.
In the low interest rate environment projected for the remainder of 2011, opportunities to invest
in high-quality assets and earn a reasonable spread will be limited, constraining earnings. The
Banks core assets, primarily advances and investments in mortgage-backed securities, will yield
lower interest margins as the Bank does not expect recovery of its funding advantage in 2011.
Advances - Management is unable to predict the timing and extent of the expected recovery in the
U.S. economy, particularly the recovery in the housing market, or an expectation of continued
stability in the financial markets. Against that backdrop, the Bank believes it is also difficult
to predict member demand for advances, which is the primary focus of the FHLBNYs operations and
the principal factor that impacts its operating results.
Generally, the growth or decline in advances is reflective of demand by members for both short-term
liquidity and long-term funding driven by economic factors such as availability to the Banks
members of alternative funding sources that are more attractive (e.g. consumer deposits), the
interest rate environment, and the outlook for the economy. Members may choose to prepay advances,
based on their expectations of interest rate changes and demand for liquidity. Demand for advances
may also be influenced by the dividend payout rate to members on their capital stock investment in
the FHLBNY. Members are required to invest in FHLBNYs capital stock in the form of membership
stock and activity-based stock. Members are required to purchase activity stock in order to borrow
advances. Advance volume is also influenced by merger activity where members are either acquired
by non-members or acquired by members of another FHLBank. When FHLBNY members are acquired by
members of another FHLBank or a non-member, they no longer qualify for membership in the FHLBNY,
which can neither renew outstanding advances or provide new advances to non-members. Subsequent to
the merger, maturing advances may not be replaced, which has an immediate impact on short-term and
overnight advance lending if the former member borrowed such advances.
Earnings As existing high-yielding fixed-rate MBS and some intermediate-term advances continue
to pay down, mature or be prepaid, it is unlikely they will be replaced by equivalent high-yielding
assets due to the low interest rate environment, and this will tend to lower the overall yield on
total assets. The FHLBNY expects general advance demand from members to continue to decline.
Specifically, the Bank expects limited demand for large intermediate-term advances because many
members have adequate liquidity, and other members have significant amounts of intermediate-term
advances that were borrowed from the FHLBNY several years ago. The FHLBNY anticipates that such
members may be considering prepaying those borrowings, or not replacing them at maturity. Members
that have expressed interest in intermediate-term borrowing have not been significant borrowers in
the past.
The FHLBNY earns income from investing its members capital and non-interest bearing liabilities,
together referred to as deployed capital, to fund interest-earning assets. The two principal
factors that impact earnings from deployed capital are the average amount of capital outstanding in
a period and the interest rate environment in the
period, which in turn impacts yields on earning assets. These factors determine the potential
earnings from deployed capital, and both factors are subject to change. The Bank cannot predict
with certainty the level of earnings from capital. In a lower interest rate environment, deployed
capital, which consists of capital stock, retained earnings, and net non-interest bearing
liabilities, will provide relatively lower income.
51
Demand for FHLBank debt - The FHLBNYs primary source of funds is the sale of consolidated
obligations in the capital markets, and the FHLBNYs ability to obtain funds through the sale of
consolidated obligations depends in part on prevailing conditions in the capital markets, which are
beyond the FHLBNYs control. The FHLBNY may not be able to obtain funding on acceptable terms
given the extraordinary market conditions and structural changes in the debt market. If the FHLBNY
cannot access funding when needed on acceptable terms, its ability to support and continue
operations could be adversely affected, which could negatively affect its financial condition and
results of operations. The pricing of the FHLBanks longer-term debt remains at levels that are
still higher than historical levels, relative to LIBOR. To the extent the FHLBanks receive
sub-optimal funding, the Banks member institutions in turn may experience higher costs for advance
borrowings. To the extent the FHLBanks may not be able to issue long-term debt at economical
spreads relative to the 3-month LIBOR rate, the FHLBNYs members borrowing choices may also be
limited.
Credit Impairment of Mortgage-backed securities - OTTI charges were insignificant in the 2011 first
quarter. However, without recovery in the near term such that liquidity returns to the
mortgage-backed securities market, or if the credit losses of the underlying collateral within the
mortgage-backed securities perform worse than expected, the FHLBNY could face additional credit
losses. In addition, certain private-label MBS may be undergoing loan modification and forbearance
proceedings at the loan level, and such processes may have an adverse impact on the amounts and
timing of expected cash flows.
REFCORP Assessments Based on projected payments by the 12 FHLBanks through the second quarter of
2011, it is likely that the FHLBanks will have satisfied its obligation to REFCORP and further
payments would not be necessary thereafter. In anticipation of the termination of their REFCORP
obligation, the FHLBanks have reached an agreement to set aside, once the obligation has ended,
amounts that would have otherwise been paid to REFCORP as restricted retained earnings, with the
objective of increasing the earnings reserves of the FHLBanks and enhancing the safety and
soundness of the FHLBank system. This would also benefit the FHLBNYs Net income.
Sovereign credit rating of the United States and impact on the FHLBanks - On April 19, 2011
Standard & Poors Ratings Services affirmed the AAA rating of the FHLBank but revised its outlook
on the debt issues of the Federal Home Loan Bank System to negative from stable. Concurrently, S&P
revised its outlooks to negative from stable for the Federal Home Loan Banks in Atlanta, Boston,
Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San Francisco, and Topeka while
affirming their AAA issuer credit ratings. These rating actions reflect S&Ps revision on April
18, 2011 of the outlook on the long-term sovereign credit rating on The United States of America to
negative from stable (AAA/Negative/A-1+). S&P will not raise the outlooks and ratings of the FHLB
System and/or System Banks above the US sovereign rating as long as the ratings and outlook on the
U.S. remain unchanged. Conversely, if the ratings on the U.S. were lowered, the ratings on the
FHLB System and System Banks whose ratings are equalized to the sovereign rating could also be
lowered. The FHLBNY cannot predict with certainty what impact, if any, these recent rating actions
will have on the FHLBank debt and consequence of any further rating actions on the cost of debt for
the FHLBNY.
52
SELECTED FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Condition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in millions) |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
September 30, 2010 |
|
|
June 30, 2010 |
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments1 |
|
$ |
16,855 |
|
|
$ |
16,739 |
|
|
$ |
15,690 |
|
|
$ |
14,971 |
|
|
$ |
15,561 |
|
Advances |
|
|
75,487 |
|
|
|
81,200 |
|
|
|
85,697 |
|
|
|
85,286 |
|
|
|
88,859 |
|
Mortgage loans held-for-portfolio,
net of allowance for credit losses2 |
|
|
1,271 |
|
|
|
1,266 |
|
|
|
1,268 |
|
|
|
1,283 |
|
|
|
1,288 |
|
Total assets |
|
|
96,874 |
|
|
|
100,212 |
|
|
|
103,094 |
|
|
|
105,183 |
|
|
|
107,239 |
|
Deposits and borrowings |
|
|
2,513 |
|
|
|
2,454 |
|
|
|
3,730 |
|
|
|
4,795 |
|
|
|
7,977 |
|
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
68,530 |
|
|
|
71,743 |
|
|
|
74,919 |
|
|
|
66,247 |
|
|
|
72,408 |
|
Discount notes |
|
|
19,507 |
|
|
|
19,391 |
|
|
|
17,788 |
|
|
|
27,481 |
|
|
|
19,816 |
|
Total consolidated obligations |
|
|
88,037 |
|
|
|
91,134 |
|
|
|
92,707 |
|
|
|
93,728 |
|
|
|
92,224 |
|
Mandatorily redeemable capital stock |
|
|
59 |
|
|
|
63 |
|
|
|
67 |
|
|
|
70 |
|
|
|
105 |
|
AHP liability |
|
|
135 |
|
|
|
138 |
|
|
|
138 |
|
|
|
144 |
|
|
|
146 |
|
REFCORP liability |
|
|
19 |
|
|
|
22 |
|
|
|
21 |
|
|
|
14 |
|
|
|
14 |
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
4,323 |
|
|
|
4,529 |
|
|
|
4,664 |
|
|
|
4,680 |
|
|
|
4,828 |
|
Retained earnings |
|
|
717 |
|
|
|
712 |
|
|
|
701 |
|
|
|
676 |
|
|
|
672 |
|
Accumulated other comprehensive
income (loss) |
|
|
(97 |
) |
|
|
(97 |
) |
|
|
(98 |
) |
|
|
(109 |
) |
|
|
(124 |
) |
Total capital |
|
|
4,943 |
|
|
|
5,144 |
|
|
|
5,267 |
|
|
|
5,247 |
|
|
|
5,376 |
|
Equity to asset ratio3 |
|
|
5.10 |
% |
|
|
5.13 |
% |
|
|
5.11 |
% |
|
|
4.99 |
% |
|
|
5.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Condition |
|
Three months ended |
|
Averages(dollars in millions) |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
September 30, 2010 |
|
|
June 30, 2010 |
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments1 |
|
$ |
19,127 |
|
|
$ |
17,343 |
|
|
$ |
16,996 |
|
|
$ |
18,757 |
|
|
$ |
17,711 |
|
Advances |
|
|
78,406 |
|
|
|
82,562 |
|
|
|
84,164 |
|
|
|
85,609 |
|
|
|
91,415 |
|
Mortgage loans |
|
|
1,270 |
|
|
|
1,272 |
|
|
|
1,274 |
|
|
|
1,281 |
|
|
|
1,299 |
|
Total assets |
|
|
101,662 |
|
|
|
104,891 |
|
|
|
106,179 |
|
|
|
108,325 |
|
|
|
113,116 |
|
Interest-bearing deposits and other borrowings |
|
|
2,401 |
|
|
|
3,290 |
|
|
|
5,062 |
|
|
|
5,212 |
|
|
|
5,050 |
|
Consolidated obligations, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
72,417 |
|
|
|
72,734 |
|
|
|
69,817 |
|
|
|
71,738 |
|
|
|
74,297 |
|
Discount notes |
|
|
17,765 |
|
|
|
18,754 |
|
|
|
21,317 |
|
|
|
22,354 |
|
|
|
24,555 |
|
Total consolidated obligations |
|
|
90,182 |
|
|
|
91,488 |
|
|
|
91,134 |
|
|
|
94,092 |
|
|
|
98,852 |
|
Mandatorily redeemable capital stock |
|
|
59 |
|
|
|
58 |
|
|
|
68 |
|
|
|
96 |
|
|
|
108 |
|
AHP liability |
|
|
137 |
|
|
|
137 |
|
|
|
141 |
|
|
|
144 |
|
|
|
144 |
|
REFCORP liability |
|
|
10 |
|
|
|
11 |
|
|
|
10 |
|
|
|
7 |
|
|
|
9 |
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock |
|
|
4,414 |
|
|
|
4,543 |
|
|
|
4,611 |
|
|
|
4,719 |
|
|
|
4,929 |
|
Retained earnings |
|
|
701 |
|
|
|
687 |
|
|
|
679 |
|
|
|
661 |
|
|
|
658 |
|
Accumulated other comprehensive income (loss) |
|
|
(103 |
) |
|
|
(94 |
) |
|
|
(106 |
) |
|
|
(120 |
) |
|
|
(141 |
) |
Total capital |
|
|
5,012 |
|
|
|
5,136 |
|
|
|
5,184 |
|
|
|
5,260 |
|
|
|
5,446 |
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results and other data |
|
|
|
(dollars in millions) |
|
|
|
(except earnings and dividends per |
|
Three months ended |
|
share, and headcount) |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
September 30, 2010 |
|
|
June 30, 2010 |
|
|
March 31, 2010 |
|
|
Net interest income4 |
|
$ |
134 |
|
|
$ |
108 |
|
|
$ |
125 |
|
|
$ |
116 |
|
|
$ |
106 |
|
Net income |
|
|
71 |
|
|
|
86 |
|
|
|
79 |
|
|
|
57 |
|
|
|
54 |
|
Dividends paid in cash7 |
|
|
66 |
|
|
|
76 |
|
|
|
54 |
|
|
|
52 |
|
|
|
71 |
|
AHP expense |
|
|
8 |
|
|
|
10 |
|
|
|
9 |
|
|
|
6 |
|
|
|
6 |
|
REFCORP expense |
|
|
18 |
|
|
|
21 |
|
|
|
20 |
|
|
|
14 |
|
|
|
13 |
|
Return on average equity* 5 |
|
|
5.74 |
% |
|
|
6.68 |
% |
|
|
6.03 |
% |
|
|
4.32 |
% |
|
|
3.99 |
% |
Return on average assets* |
|
|
0.28 |
% |
|
|
0.33 |
% |
|
|
0.29 |
% |
|
|
0.21 |
% |
|
|
0.19 |
% |
Net OTTI impairment losses |
|
|
|
|
|
|
(1 |
) |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(3 |
) |
Other non-interest income (loss) |
|
|
14 |
|
|
|
38 |
|
|
|
9 |
|
|
|
(15 |
) |
|
|
(8 |
) |
Total other income (loss) |
|
|
14 |
|
|
|
37 |
|
|
|
6 |
|
|
|
(16 |
) |
|
|
(11 |
) |
Operating expenses8 |
|
|
46 |
|
|
|
24 |
|
|
|
22 |
|
|
|
20 |
|
|
|
19 |
|
Finance Agency and Office of Finance expenses |
|
|
3 |
|
|
|
4 |
|
|
|
2 |
|
|
|
2 |
|
|
|
3 |
|
Total other expenses |
|
|
49 |
|
|
|
28 |
|
|
|
24 |
|
|
|
22 |
|
|
|
22 |
|
Operating expenses ratio* 6 |
|
|
0.19 |
% |
|
|
0.09 |
% |
|
|
0.08 |
% |
|
|
0.08 |
% |
|
|
0.07 |
% |
Earnings per share |
|
$ |
1.61 |
|
|
$ |
1.90 |
|
|
$ |
1.71 |
|
|
$ |
1.20 |
|
|
$ |
1.09 |
|
Dividend per share |
|
$ |
1.46 |
|
|
$ |
1.64 |
|
|
$ |
1.15 |
|
|
$ |
1.05 |
|
|
$ |
1.41 |
|
Headcount (Full/part time) |
|
|
269 |
|
|
|
271 |
|
|
|
269 |
|
|
|
270 |
|
|
|
266 |
|
|
|
|
1 |
|
Investments include held-to-maturity securities, available for-sale securities, Federal funds, loans to other FHLBanks, and other
interest bearing deposits.
|
|
2 |
|
Allowances for credit losses were $7.0 million, $5.8 million, $5.5 million, $5.4 million, and $5.2 million at the periods ended
March 31, 2011, December 31, 2010, September 30, 2010, June 30, 2010 and March 31, 2010. |
|
3 |
|
Equity to asset ratio is capital stock plus retained earnings and Accumulated other comprehensive income (loss) as a percentage
of total assets. |
|
4 |
|
Net interest income is net interest income before the provision for credit losses on mortgage loans. |
|
5 |
|
Return on average equity is net income as a percentage of average capital stock plus average retained earnings and average
Accumulated other comprehensive income (loss). |
|
6 |
|
Operating expenses as a percentage of total average assets. |
|
7 |
|
Excludes dividends accrued to non-members classified as interest expense under the accounting standards for certain financial
instruments with characteristics of both liabilities and equity. |
|
8 |
|
Operating expenses include Compensation and Benefits. |
|
* |
|
Annualized. |
54
Results of Operations
The following section provides a comparative discussion of the FHLBNYs results of operations
for the three months ended March 31, 2011 and 2010. For a discussion of the Critical accounting
estimates used by the FHLBNY that affect the results of operations, see Significant Accounting
Policies and Estimates in Note 1 in the Banks most recent Form 10-K filed on March 25, 2011.
Net Income
The FHLBNY manages its operations as a single business segment. Advances to members are the
primary focus of the FHLBNYs operations, and are the principal factor that impacts its operating
results. Interest income from advances is the principal source of revenue. The primary expenses
are interest paid on consolidated obligations debt, operating expenses, principally administrative
and overhead expenses, and assessments on net income. The FHLBNY is exempt from ordinary
federal, state, and local taxation except for local real estate tax. It is required to make
payments to REFCORP and set aside funds from its income towards an Affordable Housing Program
(AHP), together referred to as assessments. Other significant factors affecting the Banks Net
income include the volume and timing of investments in mortgage-backed securities, debt repurchases
and associated losses, gains and losses from hedging activities, and earnings from shareholders
capital.
Summarized below are the principal components of Net income (in thousands):
Table 1.1: Principal Components of Net Income
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
257,389 |
|
|
$ |
273,152 |
|
Total interest expense |
|
|
123,316 |
|
|
|
166,957 |
|
|
|
|
|
|
|
|
Net interest income before provision for credit losses |
|
|
134,073 |
|
|
|
106,195 |
|
Provision for credit losses on mortgage loans |
|
|
1,773 |
|
|
|
709 |
|
|
|
|
|
|
|
|
Net interest income after provision for credit losses |
|
|
132,300 |
|
|
|
105,486 |
|
Total other income (loss) |
|
|
14,303 |
|
|
|
(10,656 |
) |
Total other expenses |
|
|
49,908 |
|
|
|
21,654 |
|
|
|
|
|
|
|
|
Income before assessments |
|
|
96,695 |
|
|
|
73,176 |
|
|
|
|
|
|
|
|
Total assessments |
|
|
25,714 |
|
|
|
19,536 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
70,981 |
|
|
$ |
53,640 |
|
|
|
|
|
|
|
|
Net income 2011 first quarter compared to 2010 first quarter.
The FHLBNY reported 2011 first quarter Net income of $71.0 million, or $1.61 per share, compared
with $53.6 million, or $1.09 per share for the same period in 2010. Net income was after the
deduction of AHP and REFCORP assessments, which are a fixed percentage of the FHLBNYs
pre-assessment income.
Net income grew due to the increase in Net interest income. Net interest income was $134.1 million
in the 2011 first quarter, up from $106.2 million in the same period in 2010, an increase of 26.3%.
Although margins on advances were weaker and the cost of funding remained above historical pricing,
the increase was largely the result of $42.7 million in prepayment fees recorded to Net interest
income. In the 2011 first quarter, member-borrowers prepaid $7.1 billion of longer-term advances
and, for the most part, took advantage of prevailing lower interest rates to borrow anew at the
lower prevailing coupons.
The FHLBNY recorded $64.6 million of net gains from derivative and hedging activities in the 2011
first quarter, largely benefitting from the recognition of realized gains from termination of
hedges contemporaneous with the prepayments. Such hedge terminations contributed $52.0 million.
In general, the FHLBNY holds derivatives and associated hedged instruments and consolidated
obligation debt under the Fair Value Option accounting (FVO), to their maturity, call, or put
dates. When such financial instruments are held to their contractual maturity (or put/call dates),
nearly all of the cumulative net fair value gains and losses that are recorded as unrealized will
generally reverse over time, and fair value changes will sum to zero over time. In limited
instances, when the FHLBNY terminates these instruments prior to maturity or prior to call or put
dates (such as when members request prepayments of their borrowed advances), it would result in a
realized gain or loss.
The remaining net gain of $12.6 million from derivatives and hedging activities was due to three
factors: (1) Hedge ineffectiveness from hedges qualifying under hedge accounting rules resulted in
net unrealized fair value gains (2) Net interest income associated with interest-rate swaps
designated in economic hedges, including those matching debt under the FVO and (3) Interest rate
caps, also designated as economic hedges, reported fair value losses in a declining interest rate
environment. The impact of derivatives and hedging activities in the same period in 2010 was
insignificant. In order to manage the FHLBNYs interest rate risk profile, the FHLBNY routinely
uses derivatives to manage the interest rate risk inherent in the Banks assets and liabilities.
The FHLBNY will typically attempt to hedge an advance or consolidated obligation debt under hedge
qualifying rules. Hedge ineffectiveness, the difference between changes in the fair value of the
interest rate swap and the hedged advance or debt, will not be significant because under the Banks
conservative hedging policies, the terms of the derivatives match very closely
the terms of the hedged debt or advance. When it is operationally difficult to qualify for hedge
accounting or when the hedge cannot be assured to be highly effective, the FHLBNY will economically
hedge an advance or debt with an interest-rate derivative. Such hedges make the Bank economically
hedged but also result in P&L volatility because changes in the fair values of the derivatives are
not offset by offsetting changes in the fair values of hedged advances and debt. P&L volatility
may arise from derivatives that are designated as economic hedges and typically would exhibit
greater marked-to-market volatility when interest rates are also volatile. Also, in the course of
a derivatives existence, the derivative loses all of its fair value (gains or losses) if it is
held to maturity or to its put/call exercise dates, and that can be a source of intra-period P&L
volatility. The impact from changes in fair values of derivatives designated as economic hedges
were not significant in the 2011 first quarter or the same period in 2010.
55
The Bank accounted for certain consolidated obligation bonds and discount notes under the FVO
accounting rules. Under the FVO, the designated debt is recorded at fair values based on the cost
of issuing comparable term FHLBank debt. Changes in the fair values of debt are recorded through
non-interest Other income (loss) with an offset recorded to the basis of the debt in the Banks
balance sheet. Changes in the fair values of such debt resulted in an insignificant gain of $0.7
million in the 2011 first quarter. In contrast, changes in the fair values of such debt resulted
in losses of $8.4 million in the same period in 2010. In both periods, the bonds and notes were
economically hedged by interest rate swaps, and gains and losses were largely offset by recorded
fair value changes on the swaps.
In the 2011 first quarter, credit related OTTI was insignificant, only $0.4 million, compared with $3.4
million in the same period in 2010. No new mortgage-backed securities were impaired and the OTTI
charges were primarily as a result of additional credit losses recognized on previously impaired
private-label MBS because of further deterioration in the performance parameters of the securities.
The FHLBNY makes quarterly cash flow assessments of the expected credit performance of its entire
portfolio of private-label MBS.
Concurrent with the member initiated prepayments in the 2011 first quarter, the Bank also took the
opportunity to re-align its future debt profile by extinguishing and transferring $478.6 million of
certain high-coupon debt, at a cost that exceeded the carrying values of the debt by $51.7 million.
This was recorded as a loss in non-interest Other income (loss). Debt will be replaced by new
issuances at the lower costing debt, which will benefit Net interest income in future periods.
Operating Expenses of the FHLBNY were $7.5 million in the 2011 first quarter, up from $6.3 million
in the same period in 2010. Compensation and benefits rose to $38.9 million in the 2011 period, up
from $12.9 million in the same period in 2010. In March 2011, the FHLBNY contributed $24.0 million
to its Defined Benefit Plan to eliminate a funding shortfall this amount was charged to Net income.
The FHLBNY was also assessed for its share of the operating expenses for the Finance Agency and
the Office of Finance, and those totaled $3.4 million in the 2011 first quarter, up from $2.4 million
in the same period in 2010. The 12 FHLBanks and two other GSEs share the administrative cost of
the Finance Agency.
Affordable
Housing Program (AHP) assessment set aside from income
totaled $7.9 million in the 2011
first quarter, up from $6.1 million in the same period in 2010. REFCORP assessment payments
totaled $17.7 million in the 2011 first quarter, up from $13.4 million in the same period in 2010.
Assessments are calculated on Net income before assessments, and the increases were due to the
increase in Net income in the 2011 first quarter as compared to the same period in 2010.
Interest Income 2011 first quarter compared to 2010 first quarter
Interest income from advances and investments in mortgage-backed securities are the principal
sources of income for the FHLBNY. Changes in both rate and intermediation volume (average
interest-yielding assets) explain the change in the current year period from the prior year period.
The principal categories of Interest Income are summarized below (dollars in thousands):
Table 1.2: Interest Income Principal Sources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Variance |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
158,696 |
|
|
$ |
149,640 |
|
|
|
6.05 |
% |
Interest-bearing deposits 1 |
|
|
966 |
|
|
|
830 |
|
|
|
16.39 |
|
Federal funds sold |
|
|
2,546 |
|
|
|
1,543 |
|
|
|
65.00 |
|
Available-for-sale securities |
|
|
8,639 |
|
|
|
5,764 |
|
|
|
49.88 |
|
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
71,056 |
|
|
|
98,634 |
|
|
|
(27.96 |
) |
Mortgage loans held-for-portfolio |
|
|
15,486 |
|
|
|
16,741 |
|
|
|
(7.50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
257,389 |
|
|
$ |
273,152 |
|
|
|
(5.77 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Primarily from cash collateral deposited with swap counterparties. |
Reported Interest income from advances was adjusted for the cash flows associated with
interest rate swaps. The Bank generally pays fixed-rate cash flows to derivative counterparties,
and in exchange, the Bank receives variable-rate LIBOR-indexed cash flows fixed-rate cash flows,
which typically mirror the fixed-rate coupon received from advances borrowed by members.
The 2011 first quarter Interest income, which included $42.7 million of prepayment fees, declined
compared to the same period in 2010. The primary causes were (1) lower coupons and yields from
advances and investments in a declining interest rate environment, (2) lower volume of advance
business, and (3) run-offs of higher yielding assets which were being replaced by assets with lower
coupons. See Table 1.10 Rate and Volume Analysis for more information.
56
Impact of hedging advances - The FHLBNY executes interest rate swaps to modify the effective
interest rate terms of many of its fixed-rate advance products and typically all of its putable
advances. In these swaps, the FHLBNY effectively converts a fixed-rate stream of cash flows from
its fixed-rate advances to a floating-rate stream of cash flows, typically indexed to LIBOR. These
cash flow patterns from derivatives were in line with the Banks interest rate risk management
practices and effectively converted fixed-rate cash flows of hedged advances to LIBOR-indexed cash
flows. Derivative strategies are used to manage the interest rate risk inherent in fixed-rate
advances and are designed to protect future interest income.
The table below summarizes interest income earned from advances and the impact of interest rate
derivatives (in thousands):
Table 1.3: Impact of Interest Rate Swaps on Interest Income Earned from Advances
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Advance Interest Income |
|
|
|
|
|
|
|
|
Advance interest income before adjustment
for interest rate swaps |
|
$ |
597,304 |
|
|
$ |
679,921 |
|
Net interest adjustment from interest rate swaps |
|
|
(438,608 |
) |
|
|
(530,281 |
) |
|
|
|
|
|
|
|
Total Advance interest income reported |
|
$ |
158,696 |
|
|
$ |
149,640 |
|
|
|
|
|
|
|
|
In the 2011 first quarter, the FHLBNY paid swap counterparties fixed-rate cash flows, which
typically mirrored the coupons on hedged advances. In return, the swap counterparties paid the
FHLBNY a pre-determined spread plus the prevailing 3-month LIBOR, which resets generally every
three months. In the table above, the unfavorable cash flow patterns of the interest rate swaps
were indicative of the declining LIBOR rates (obligation of the swap counterparty) compared to
fixed-rate obligation of the FHLBNY. The Bank is generally indifferent to changes in the cash flow
patterns as it typically hedges its fixed-rate consolidated obligation debt, which is the Banks
primary funding base, and achieves its overall net interest spread objective.
Under GAAP, net interest adjustments from derivatives (as described in the table above) may be
offset against the net interest accruals of the hedged financial instrument (e.g. advance) only if
the derivative is in a hedge-qualifying relationship. If the hedge does not qualify under hedge
accounting rules, and the Bank designates the hedge as an economic hedge, the net interest
adjustments from derivatives would not be recorded with the advance interest revenues. Instead,
the net interest adjustments from swaps would be recorded in Other income (loss) as a Net realized
and unrealized gain (loss) from derivatives and hedging activities. Thus, the accounting
designation of a hedge may have a significant impact on reported Interest income from advances.
There were no material amounts of net interest adjustments from interest rate swaps designated as
economic hedges of advances that were reported in Other income (loss) in the current year or prior
year periods related to swaps associated with advances.
Interest Expense 2011 first quarter compared to 2010 first quarter
The FHLBNYs primary source of funding is through the issuance of consolidated obligation bonds and
discount notes in the global debt markets. Consolidated obligation bonds are medium- and long-term
bonds, while discount notes are short-term instruments. To fund its assets, the FHLBNY considers
its interest rate risk and liquidity requirements in conjunction with consolidated obligation
buyers preferences and capital market conditions when determining the characteristics of debt to
be issued. Typically the Bank has used fixed-rate callable and non-callable bonds to fund
mortgage-related assets and advances. Discount notes are issued to fund advances and investments
with shorter interest rate reset characteristics.
The principal categories of Interest expense are summarized below (dollars in thousands). Changes
in rate and intermediation volume (average interest-costing liabilities), the mix of debt issuances
between bonds and discount notes, and the impact of hedging strategies explain the changes in
interest expense.
Table 1.4: Interest Expenses Principal Categories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Variance |
|
Interest
Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
114,277 |
|
|
$ |
154,913 |
|
|
|
(26.23 |
)% |
Consolidated obligations-discount notes |
|
|
7,816 |
|
|
|
9,657 |
|
|
|
(19.06 |
) |
Deposits |
|
|
470 |
|
|
|
892 |
|
|
|
(47.31 |
) |
Mandatorily redeemable capital stock |
|
|
744 |
|
|
|
1,495 |
|
|
|
(50.23 |
) |
Cash collateral held and other borrowings |
|
|
9 |
|
|
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
123,316 |
|
|
$ |
166,957 |
|
|
|
(26.14 |
)% |
|
|
|
|
|
|
|
|
|
|
Reported Interest expense for consolidated obligation bonds is adjusted for the cash flows
associated with interest rate swaps. The Bank generally pays variable-rate LIBOR-indexed cash
flows to derivative counterparties and, in exchange, the Bank receives fixed-rate cash flows, which
typically mirror the fixed-rate coupon payments to investors holding the FHLBank bonds. The Bank
generally hedges its long-term fixed-rate bonds and almost all fixed-rate callable bonds with swaps
that generally qualify for hedge accounting. The Bank economically hedged certain floating-rate
bonds that were not indexed to 3-month LIBOR and certain short-term fixed-rate debt and discount
notes. The Bank believed that the hedges would not be highly effective in offsetting changes in
the fair values of the debt and the swap, and would not therefore qualify for hedge accounting.
57
Reported Interest expense in the 2011 first quarter declined compared to the same period in 2010
because of (1) lower cost of coupons paid on consolidated obligation bonds and discount notes, and
(2) lower volume of debt issued because of decline in funding requirements as balance sheet assets
declined, specifically advances borrowed by members. See Table 1.10, Rate and Volume Analysis for
more information.
Impact of hedging debt The FHLBNY issues both fixed-rate callable and non-callable debt.
Typically, the Bank issues callable debt with the simultaneous execution of cancellable interest
rate swaps to modify the effective interest rate terms and the effective durations of its
fixed-rate callable debt. A substantial percentage of non-callable fixed-rate debt is also swapped
to plain vanilla LIBOR-indexed cash flows. These hedging strategies benefit the Bank in two
principal ways: (1) fixed-rate callable bond, in conjunction with interest rate swap containing a
call feature that mirrors the option embedded in the callable bond, enables the FHLBNY to meet its
funding needs at yields not otherwise directly attainable through the issuance of callable debt;
and, (2) the issuance of fixed-rate debt and the simultaneous execution of an interest rate swap
converts the debt to an adjustable-rate instrument tied to an index, typically 3-month LIBOR.
Derivative strategies are used to manage the interest rate risk inherent in fixed-rate debt, and
certain floating-rate debt that are not indexed to 3-month LIBOR rates. The strategies are
designed to protect future interest income. The economic hedge of debt tied to indices other than
3-month LIBOR (Prime, Federal funds rate, and 1-month LIBOR) is designed to effectively convert the
cash flows of the debt to 3-month LIBOR.
The table below summarizes interest expense paid on consolidated obligation bonds and discount
notes and the impact of interest rate swaps (in thousands):
Table 1.5: Impact of Interest Rate Swaps on Consolidated Obligation Interest Expense
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Consolidated bonds and discount notes-Interest expense |
|
|
|
|
|
|
|
|
Bonds-Interest expense before adjustment for swaps |
|
$ |
249,744 |
|
|
$ |
328,657 |
|
Discount notes-Interest expense before adjustment for swaps |
|
|
7,816 |
|
|
|
9,657 |
|
Net interest adjustment for interest rate swaps |
|
|
(135,467 |
) |
|
|
(173,744 |
) |
|
|
|
|
|
|
|
Total Consolidated bonds and discount notes-interest expense reported |
|
$ |
122,093 |
|
|
$ |
164,570 |
|
|
|
|
|
|
|
|
Funding environment Pricing of FHLBank bonds and discount notes have remained at very
narrow sub-LIBOR spreads, and cost of funding has remained well above historical cost of FHLBank
debt. Investor demand appears to be for shorter maturity bonds and notes. The prevailing investor
belief seems to be that rates will eventually rise over the next 12 months, and investors are
temporarily parking their cash in short maturity instruments. If such sentiments continue,
discount note pricing should be most attractive for notes that mature within a month. The FHLBNY
has generally increased the proportion of discount notes, relative to bonds, to fund its balance
sheet. Issuance of long- and medium-term FHLBank bonds has remained at all-time lows as the
pricing of bonds longer than 3-4 years have been uneconomical to issue.
Net Interest Income 2011 first quarter compared to 2010 first quarter
Net interest income is the principal source of revenue for the Bank, and represents the difference
between interest income from interest-earning assets and interest expense paid on interest-costing
liabilities. Net interest income is impacted by a variety of factors: Net interest income is
directly impacted by transaction volumes, as measured by average balances of interest earning
assets, and by the prevailing balance sheet yields, as measured by coupons on earning assets minus
yields paid on interest-costing liabilities net of the cash flows paid or received on interest rate
derivatives that qualified under hedge accounting rules.
|
|
Member demand for advances and investment activity, the yields from advances and
investments, and the cost of consolidated obligation debt that is issued by the Bank to fund
advances and investments. |
|
|
The volatility of the 3-month LIBOR rate and its absolute level has a profound
impact on the Banks cost of funding and earning assets. A stable spread between the FHLBank
issued-debt and LIBOR is also an important element in the Banks funding tactics and also
impacts the pricing of advances offered to members. |
|
|
The execution of interest rate swaps in the derivative market at a constant
spread to LIBOR, in effect converting fixed-rate advances and fixed-rate debt to conventional
adjustable-rate instruments indexed to LIBOR, results in
an important intermediation for the Bank between the capital markets and the swap market. The
intermediation has typically permitted the Bank to raise funds at lower costs than would
otherwise be available through the issuance of simple fixed- or floating-rate debt in the
capital markets. The FHLBNY deploys hedging strategies to protect future net interest income.
These strategies may reduce income in the short-run, but the FHLBNY expects them to benefit
future periods. |
|
|
Income earned from assets funded by member capital and retained earnings,
referred to as deployed capital, which is non-interest bearing, is another important
contributor for the FHLBNY. |
All of these factors may fluctuate based on changes in interest rates, demand by members for
advances, investor demand for debt issued by the FHLBNY, the change in the spread between the
yields on advances and investments, and the cost of financing these assets by the issuance of debt
to investors.
58
The following table summarizes Net interest income (dollars in thousands):
Table 1.6: Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Variance |
|
Total interest income |
|
$ |
257,389 |
|
|
$ |
273,152 |
|
|
|
(5.78 |
)% |
Total interest expense |
|
|
123,316 |
|
|
|
166,957 |
|
|
|
(26.14 |
) |
|
|
|
|
|
|
|
|
|
|
Net interest income before
provision for credit losses |
|
$ |
134,073 |
|
|
$ |
106,195 |
|
|
|
26.25 |
% |
|
|
|
|
|
|
|
|
|
|
Net interest income benefited from prepayment fees of $42.7 million. Without the positive
impact of the fees, Net interest income would have declined in the 2011 first quarter compared to
the same period in 2010, primarily because of (1) lower business volume as measured by average
advances borrowed by members, and (2) prepayments, paydowns and maturities of higher-yielding
assets that were replaced with assets with lower spreads.
Impact of lower interest income from investing member capital The FHLBNY earns significant
interest income from investing its members capital to fund interest-earning assets. Such earnings
are sensitive to the changes in short-term interest rates (Rate effects), and to changes in the
average outstanding capital and non-interest bearing liabilities (Volume effects). In the 2011
first quarter, the FHLBNY earned less interest income from investing members capital and net
non-interest assets compared to the same period in 2010. This was caused by the decline in
stockholders capital stock, which has declined in parallel with the lower volume of advances
borrowed by members. As capital declines, the FHLBNY has lower amounts of deployed capital to
invest and enhance interest income. Typically, members capital is invested in short-term liquid
investments, and the Bank earned very low income because of much lower yields in both periods. For
more information, see Table 1.9: Spread and Yield Analysis and Table 1.10: Rate and Volume
Analysis.
Impact of qualifying hedges on Net interest income - The Bank deploys hedging strategies to protect
future net interest income that may reduce income in the short-term. Net interest accruals of
derivatives designated in a fair value or cash flow hedge qualifying under hedge accounting rules
are recorded as adjustments to the interest income or interest expense of the hedged assets or
liabilities. They can have a significant impact on Net interest income. On a GAAP basis, the
impact of derivatives was to reduce Net interest income. For more information, see the table
below.
The following table summarizes the impact of net interest adjustments from hedge qualifying
interest-rate swaps (in thousands):
Table 1.7: Net Interest Adjustments from Hedge Qualifying Interest-Rate Swaps
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Interest Income |
|
$ |
695,997 |
|
|
$ |
803,433 |
|
Net interest adjustment from interest rate swaps |
|
|
(438,608 |
) |
|
|
(530,281 |
) |
|
|
|
|
|
|
|
Reported interest income |
|
|
257,389 |
|
|
|
273,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
258,783 |
|
|
|
340,701 |
|
Net interest adjustment from interest rate swaps |
|
|
(135,467 |
) |
|
|
(173,744 |
) |
|
|
|
|
|
|
|
Reported interest expense |
|
|
123,316 |
|
|
|
166,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (Margin) |
|
$ |
134,073 |
|
|
$ |
106,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest adjustment interest rate swaps |
|
$ |
(303,141 |
) |
|
$ |
(356,537 |
) |
|
|
|
|
|
|
|
Net interest accruals of derivatives designated in a fair value or cash flow hedge qualifying under
the derivatives and hedge accounting rules were recorded as adjustments to the interest income or
interest expense of the hedged assets or liabilities, and had a significant impact on net interest
income.
As reported in the table above, the FHLBNY paid to swap counterparties increasing amounts of
interest payments over the last three years, because the cash flow interest exchanges between the
swap dealer and the FHLBNY have been such that the hedges of fixed-rate advances resulted in a
significantly greater amounts of cash out-flows than the cash in-flows from hedges of fixed-rate
consolidated obligation debt.
In a hedge of a fixed-rate advance, the FHLBNY pays the swap dealer fixed-rate interest payment
(which typically mirrors the coupon of the hedged advance), and in return the swap counterparties
pay the FHLBNY a pre-determined spread plus the prevailing LIBOR, which resets generally every
three months.
In a hedge of a fixed-rate consolidated obligation bond, the FHLBNY pays the swap dealer a
LIBOR-indexed interest payment, and in return the swap dealer pays fixed-rate interest payments
(which typically mirrors the coupon paid to investors holding the FHLBank debt).
As reported in the table above, the unfavorable cash flow patterns of the interest rate swaps were
indicative of the declining LIBOR rates (obligation of the swap counterparty) compared to
fixed-rate obligation of the FHLBNY. The Bank is generally indifferent to changes in the cash flow
patterns, as it achieves its overall net interest spread objective and remains indifferent for the
most part to the volatility of interest rates.
59
Impact of economic hedges on Net interest income 2011 first quarter compared to 2010 first quarter
- The
FHLBNY executes certain transactions designated as economic hedges, primarily as hedges of FHLBNY
debt. Under existing accounting rules, the interest income or expense generated from the
derivatives designated as economic hedges is not reported as a component of Net interest income,
although they have an economic impact on
Net interest income. Under GAAP, interest income or expense from such derivatives are recorded as
derivative gains and losses in Other income (loss).
The reporting classification of interest income or expense associated with swaps designated as
economic hedges has no impact on Net income, as these adjustments are either reported as a
component of Net interest income or as a component of Other income as gains or losses from hedging
activities. Interest rate swaps designated as economic hedges have declined as much of the swaps
executed in prior years have matured. In prior years, significant amounts of swaps were designated
as economic hedges of consolidated obligation debt, in a hedging strategy that converted
floating-rate debt indexed to 1-month LIBOR, the Prime rate, and the Federal funds rate to 3-month
LIBOR cash flows.
The following table contrasts Net interest income, Net income spread and Return on earning assets
between GAAP and economic basis (dollar amounts in thousands):
Table 1.8: GAAP Versus Economic Basis Contrasting Net Interest Income, Net Income Spread
and Return on Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2011 |
|
|
Three months ended March 31, 2010 |
|
|
|
Amount |
|
|
ROA |
|
|
Net Spread |
|
|
Amount |
|
|
ROA |
|
|
Net Spread |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net interest income |
|
$ |
134,073 |
|
|
|
0.54 |
% |
|
|
0.49 |
% |
|
$ |
106,195 |
|
|
|
0.38 |
% |
|
|
0.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps not designated in a
hedging relationship |
|
|
12,857 |
|
|
|
0.05 |
|
|
|
0.06 |
|
|
|
37,220 |
|
|
|
0.14 |
|
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic net interest income |
|
$ |
146,930 |
|
|
|
0.59 |
% |
|
|
0.55 |
% |
|
$ |
143,415 |
|
|
|
0.52 |
% |
|
|
0.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Explanation of the use of certain non-GAAP measures of Interest Income and Expense, Net Interest
income and margin. The FHLBNY has presented its results of operations in accordance with U.S.
generally accepted accounting principles. The FHLBNY has also presented certain information
regarding its Interest Income and Expense, Net Interest income and Net Interest spread that
combines interest expense on debt with net interest paid on interest rate swaps associated with
debt that were hedged on an economic basis. These are non-GAAP financial measures used by
management that the FHLBNY believes are useful to investors and members of the FHLBNY in
understanding the Banks operational performance as well as business and performance trends.
Although the FHLBNY believes these non-GAAP financial measures enhance investor and members
understanding of the Banks business and performance, these non-GAAP financial measures should not
be considered an alternative to GAAP. When discussing non-GAAP measures, the Bank has provided
GAAP measures in parallel.
60
Spread and Yield Analysis
Average balance sheet information is presented below, as it is more representative of activity
throughout the periods presented. For most components of the average balances, a daily weighted
average was calculated for the period. When daily weighted average balance information was not
available, a simple monthly average balance was calculated. Average yields were derived by
dividing income by the average balances of the related assets, and average costs are derived by
dividing expenses by the average balances of the related liabilities.
Table 1.9: Spread and Yield Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
|
|
|
|
Average |
|
|
Income/ |
|
|
|
|
(Dollars in thousands) |
|
Balance |
|
|
Expense |
|
|
Rate1 |
|
|
Balance |
|
|
Expense |
|
|
Rate1 |
|
Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
78,406,209 |
|
|
$ |
158,696 |
|
|
|
0.82 |
% |
|
$ |
91,414,698 |
|
|
$ |
149,640 |
|
|
|
0.66 |
% |
Certificates of deposit and other |
|
|
2,368,320 |
|
|
|
966 |
|
|
|
0.17 |
|
|
|
2,261,163 |
|
|
|
830 |
|
|
|
0.15 |
|
Federal funds sold and other overnight funds |
|
|
7,347,356 |
|
|
|
2,546 |
|
|
|
0.14 |
|
|
|
5,371,946 |
|
|
|
1,543 |
|
|
|
0.12 |
|
Investments |
|
|
11,762,592 |
|
|
|
79,695 |
|
|
|
2.75 |
|
|
|
12,412,612 |
|
|
|
104,398 |
|
|
|
3.41 |
|
Mortgage and other loans |
|
|
1,270,681 |
|
|
|
15,486 |
|
|
|
4.94 |
|
|
|
1,299,588 |
|
|
|
16,741 |
|
|
|
5.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
101,155,158 |
|
|
$ |
257,389 |
|
|
|
1.03 |
% |
|
$ |
112,760,007 |
|
|
$ |
273,152 |
|
|
|
0.98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded By: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
$ |
72,417,536 |
|
|
$ |
114,277 |
|
|
|
0.64 |
|
|
$ |
74,296,820 |
|
|
$ |
154,913 |
|
|
|
0.85 |
|
Consolidated obligations-discount notes |
|
|
17,764,760 |
|
|
|
7,816 |
|
|
|
0.18 |
|
|
|
24,555,640 |
|
|
|
9,657 |
|
|
|
0.16 |
|
Interest-bearing deposits and
other borrowings |
|
|
2,424,583 |
|
|
|
479 |
|
|
|
0.08 |
|
|
|
5,051,351 |
|
|
|
892 |
|
|
|
0.07 |
|
Mandatorily redeemable capital stock |
|
|
59,197 |
|
|
|
744 |
|
|
|
5.10 |
|
|
|
108,396 |
|
|
|
1,495 |
|
|
|
5.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
92,666,076 |
|
|
|
123,316 |
|
|
|
0.54 |
% |
|
|
104,012,207 |
|
|
|
166,957 |
|
|
|
0.65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital and other non-interest-
bearing funds |
|
|
8,489,082 |
|
|
|
|
|
|
|
|
|
|
|
8,747,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Funding |
|
$ |
101,155,158 |
|
|
$ |
123,316 |
|
|
|
|
|
|
$ |
112,760,007 |
|
|
$ |
166,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income/Spread |
|
|
|
|
|
$ |
134,073 |
|
|
|
0.49 |
% |
|
|
|
|
|
$ |
106,195 |
|
|
|
0.33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Net interest income/Earning Assets) |
|
|
|
|
|
|
|
|
|
|
0.54 |
% |
|
|
|
|
|
|
|
|
|
|
0.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Reported yields with respect to advances and debt may not necessarily equal the coupons on
the instruments as derivatives are extensively used to change the yield and optionality
characteristics of the underlying hedged items. When fixed-rate debt is issued by the Bank and
hedged with an interest rate derivative, it effectively converts the debt into a simple
floating-rate bond. Similarly, the Bank makes fixed-rate advances to members and hedges the advance
with a pay-fixed, receive-variable interest rate derivative that effectively converts the
fixed-rate asset to one that floats with prevailing LIBOR rates. Average balance sheet information
is presented as it is more representative of activity throughout the periods presented. For most
components of the average balances, a daily weighted average balance is calculated for the period.
When daily weighted average balance information is not available, a simple monthly average balance
is calculated. Average yields are derived by dividing income by the average balances of the
related assets and average costs are derived by dividing expenses by the average balances of the
related liabilities. Yields and rates are annualized. |
61
Rate and Volume Analysis
The Rate and Volume Analysis presents changes in interest income, interest expense, and net
interest income that are due to changes in volumes and rates. The following tables present the
extent to which changes in interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities affected the FHLBNYs interest income and interest expense (in
thousands).
Table 1.10: Rate and Volume Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
March 31, 2011 vs. March 31, 2010 |
|
|
|
Increase (Decrease) |
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
$ |
(23,186 |
) |
|
$ |
32,242 |
|
|
$ |
9,056 |
|
Certificates of deposit and other |
|
|
40 |
|
|
|
96 |
|
|
|
136 |
|
Federal funds sold and other overnight funds |
|
|
643 |
|
|
|
360 |
|
|
|
1,003 |
|
Investments |
|
|
(5,241 |
) |
|
|
(19,462 |
) |
|
|
(24,703 |
) |
Mortgage loans and other loans |
|
|
(367 |
) |
|
|
(888 |
) |
|
|
(1,255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
(28,111 |
) |
|
|
12,348 |
|
|
|
(15,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations-bonds |
|
|
(3,829 |
) |
|
|
(36,807 |
) |
|
|
(40,636 |
) |
Consolidated obligations-discount notes |
|
|
(2,892 |
) |
|
|
1,051 |
|
|
|
(1,841 |
) |
Deposits and borrowings |
|
|
(508 |
) |
|
|
95 |
|
|
|
(413 |
) |
Mandatorily redeemable capital stock |
|
|
(629 |
) |
|
|
(122 |
) |
|
|
(751 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
(7,858 |
) |
|
|
(35,783 |
) |
|
|
(43,641 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Net Interest Income |
|
$ |
(20,253 |
) |
|
$ |
48,131 |
|
|
$ |
27,878 |
|
|
|
|
|
|
|
|
|
|
|
Allowance for Credit Losses 2011 first quarter compared to 2010 first quarter
|
|
Mortgage loans held-for-portfolio - The Bank evaluates mortgage loans at least quarterly on
an individual loan-by-loan basis and compares the fair values of collateral (net of
liquidation costs) to recorded investment values in order to measure credit losses on impaired
loans. Based on the analysis performed, a provision of $1.8 million was recorded in the 2011
first quarter compared with $0.7 million in the same period in 2010. Increase in provision
was due to increase in haircut values of collateral for evaluating impaired loans. Charge
offs were insignificant in all periods, and were substantially recovered through the credit
enhancement provisions of MPF loans. The FHLBNY believes the allowance for loan losses is
adequate to cover the losses inherent in the FHLBNYs mortgage loan portfolio. |
|
|
Advances - The FHLBNYs credit risk from advances at March 31, 2011 and December 31, 2010
were concentrated in commercial banks, savings institutions and insurance companies. All
advances were fully collateralized during their entire term. In addition, borrowing members
pledged their stock in the FHLBNY as additional collateral for advances. The FHLBNY has not
experienced any losses on credit extended to any member since its inception. Based on the
collateral held as security and prior repayment history, no allowance for losses is currently
deemed necessary. |
The principal components of non-interest income (loss) are summarized below (in thousands):
Table 1.11: Analysis of Non-Interest Income (Loss) 2011 first quarter compared to 2010
first quarter
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Other income (loss): |
|
|
|
|
|
|
|
|
Service fees and other |
|
$ |
1,256 |
|
|
$ |
1,045 |
|
Instruments held at fair value Unrealized gains (losses) |
|
|
740 |
|
|
|
(8,419 |
) |
|
|
|
|
|
|
|
|
|
Total OTTI losses |
|
|
|
|
|
|
(3,873 |
) |
Net amount of impairment losses reclassified (from) to |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
(370 |
) |
|
|
473 |
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
(370 |
) |
|
|
(3,400 |
) |
|
|
|
|
|
|
|
Net realized and unrealized gains (losses)
on derivatives and hedging activities |
|
|
64,570 |
|
|
|
(363 |
) |
Net realized gains from sale of available-for-sale securities
and redemption of held-to-maturity securities |
|
|
|
|
|
|
708 |
|
Losses from extinguishment of debt and other |
|
|
(51,893 |
) |
|
|
(227 |
) |
|
|
|
|
|
|
|
Total other income (loss) |
|
$ |
14,303 |
|
|
$ |
(10,656 |
) |
|
|
|
|
|
|
|
62
Service fees
Service fees are derived primarily from providing correspondent banking services to members and
fees earned on standby letters of credit. The Bank does not consider income from such services to
be a significant element of its operations.
Net impairment losses recognized in earnings on held-to-maturity securities Other-than-temporary
impairment (OTTI)
Credit-related OTTI was insignificant in the 2011 first quarter, just $0.4 million compared with
$3.4 million in the same period in 2010. No new MBS were impaired and the OTTI charges were
primarily as a result of additional credit losses caused by slight deterioration in the performance
parameters of certain previously impaired private-label MBS. The FHLBNY makes quarterly cash flow
assessments of the expected credit performance of its entire portfolio of private-label MBS.
Net realized and unrealized gain (loss) on derivatives and hedging activities and Earnings impact
of derivatives and hedging activities
The Bank may designate a derivative as either a hedge of (1) the fair value of a recognized
fixed-rate asset or liability or an unrecognized firm commitment (fair value hedge); (2) a
forecasted transaction; or (3) the variability of future cash flows of a floating-rate asset or
liability (cash flow hedge). The Bank may also designate a derivative as an economic hedge, which
does not qualify for hedge accounting under the accounting standards for derivatives and hedging.
Changes in the fair value of a derivative that qualifies as a fair value hedge under the accounting
standards for derivatives and hedging and the offsetting gain or loss on the hedged asset or
liability attributable to the hedged risk are recorded in Other income (loss) as a Net realized and
unrealized gain (loss) on derivatives and hedging activities. To the extent that changes in the
fair value of the derivative are not entirely offset by changes in the fair value of the hedged
asset or liability, the net impact from hedging activities represents hedge ineffectiveness.
Net interest accruals of derivatives designated in qualifying fair value or cash flow hedges under
the accounting standards for derivatives and hedging are recorded as adjustments to the interest
income or interest expense of the hedged assets or liabilities. Net interest accruals of
derivatives that do not qualify for hedge accounting under the accounting standards for derivatives
and hedging and interest received from in-the-money options are recorded in Other income (loss)
as a Net realized and unrealized gain (loss) on derivatives and hedging activities. The effective
portion of changes in the fair value of a derivative that is designated and qualifies as a cash
flow hedge under the accounting standards for derivatives and hedging are recorded in AOCI.
For all qualifying hedge relationships under the accounting standards for derivatives and hedging,
hedge ineffectiveness resulting from differences between changes in fair values or cash flows of
the hedged item and changes in fair value of the derivatives are recognized in Other income (loss)
as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
Net realized and unrealized gains and losses from qualifying hedging activities under the
accounting standards for derivatives and hedging are typically impacted by changes in the benchmark
interest rate (designated as LIBOR by the FHLBNY) and the degree of ineffectiveness of hedging
relationships between the change in the fair value of derivatives and changes in the fair value of
the hedged assets and liabilities attributable to changes in benchmark interest rate. Typically,
such gains and losses represent hedge ineffectiveness between changes in the fair value of the
hedged item and changes in the fair value of the derivative.
Earnings impact of Instruments held at fair value under the Fair Value Option
Under the accounting standards for the fair value option (FVO) for financial assets and
liabilities, the FHLBNY elected to carry certain consolidated obligation bonds and discount at fair
value in the Statements of Condition. The Bank records changes in the unrealized fair value gains
and losses on these liabilities in Other income (loss). In general, transactions elected for the
fair value option are in economic hedge relationships by the execution of interest rate swaps to
offset the fair value volatility of consolidated obligation debt elected under the FVO.
The recorded P&L impact of fair value changes of consolidated obligation bonds and discount notes
under the FVO are primarily unrealized. Debt under the FVO designation consisted primarily of
intermediate term bonds and discount notes. Gains are recorded when the debts market observable
yields (with appropriate consideration for credit standing) are higher than the contractual coupons
or yields of the designated debt as of the balance sheet dates. Conversely, if market interest
rates fall below the contractual coupons or yields, a fair value loss is recorded. Losses and
gains would also be recorded in the period the debt matures, causing previously recorded unrealized
gains and losses to reverse in that period. Said another way, when bonds and discount notes are
recorded at fair value and are held to maturity, their cumulative fair value changes sum to zero at
maturity.
The Bank hedges debt designated under the FVO on an economic basis by executing interest rate swaps
with terms that match such debt. Unrealized gains and losses were almost entirely offset by fair
value changes on derivatives that economically hedged the debt. For more information, see Table
1.12 below and Note 16 Fair Values of Financial Instruments.
63
Earnings Impact of Derivatives and Hedging Activities
Qualifying hedges under the accounting standards for derivatives and hedging - Hedge
ineffectiveness occurs when changes in the fair value of the derivative and the associated hedged
financial instrument (generally debt or an advance) do not perfectly offset each other. Hedge
ineffectiveness is associated with changes in the benchmark interest rate and volatility, and the
extent of the mismatch of the structures of the derivative and the hedged financial instrument.
Key components of $58.1 million in hedging gains from qualifying hedges were primarily due to:
|
|
Net gains from hedges of advances were $56.3 million in the 2011 first quarter, largely
benefitting from the recognition of realized gains from termination of hedges contemporaneous
with the prepayments of hedged advances. Such hedge terminations contributed $52.0 million. |
|
|
Net gains from hedges of debt and advances and other instruments were not material in the
2011 first quarter, contributing $6.1 million. In the same period in 2010, a gain of $4.6
million was recorded. |
|
|
Typically, the FHLBNY hedges its advances and bonds with structures that are almost
identical, and gains and losses represent hedge ineffectiveness caused by the asymmetrical
impact of interest rate volatility on hedged debt and advances and associated swaps. Besides
market volatility of interest rates, gains and losses are also caused by the timing of the
maturity of swaps, because all gains and losses are unrealized and reverse as swaps mature or
approach maturity. Thus, a fair value loss in a reported period may be followed by a gain in
the period the swap matures. |
Economic hedges An economic hedge represents derivative transactions that are an approved risk
management hedge but may not qualify for hedge accounting treatment under the accounting standards
for derivatives and hedging. When derivatives are designated as economic hedges, the fair value
changes due to changes in the interest rate and volatility of rates are recorded through earnings
without the offsetting change in the fair values of the hedged advances and debt as would be
afforded under the derivatives and hedge accounting rules. In general, the FHLBNYs derivatives
are held to maturity or to their call or put dates. At inception, the fair value is at market
and is generally zero. Until the derivative matures or is called or put on pre-determined dates,
fair values will fluctuate with changes in the interest rate environment and volatility observed in
the swap market. At maturity or scheduled call or put dates, the fair value will generally reverse
to zero as the Banks derivatives settle at par. Therefore, nearly all of the cumulative net gains
and losses that are unrealized at a point in time will reverse over the remaining contractual terms
so that the cumulative gains or losses will sum to zero over the contractual maturity, scheduled
call, or put dates.
However, interest income and expense have economic consequences since they are the result of
exchanges of cash payments or receipts. Additionally, if derivatives are prepaid prior to maturity
or at predetermined call and put dates, they are settled at the then existing fair values in cash.
Under hedge accounting rules, net swap interest expense and income associated with swaps in
economic hedges of assets and liabilities are recorded as hedging losses and gains. On the other
hand, when swaps qualify for hedge accounting treatment, interest income and interest expense from
interest rate swaps are reported as a component of Net interest income together with interest on
the instrument being hedged.
Key components of hedging gains from derivatives designated as economic hedges were primarily due
to:
|
|
Economic hedges of consolidated obligation bonds Unrealized gains were not significant
and were generated primarily by: (1) Basis swaps that synthetically converted floating-rate
debt (based on non- 3-month LIBOR: Prime rate, Federal funds rate, and 1-month LIBOR) to
3-month LIBOR cash flows, and (2) Short-term callable debt swapped by mirror image interest
rate swaps. The pay-leg of the basis swaps floats with changes to the 3-month LIBOR index.
The receive-leg floats with changes to indices other than 3-month LIBOR. |
|
|
Economic hedges of consolidated obligation discount notes The FHLBNY hedges the principal
amounts of certain term discount notes to convert fixed cash flows to LIBOR indexed cash
flows. Their impact was not material. |
|
|
Economic hedges of balance sheet parameters, primarily hedging GSE-issued capped
floating-rate mortgage-backed securities. The Bank has an inventory of $1.9 billion of
interest-rate caps with final maturities in 2018 and strikes ranging from 6.20% to 6.75%
indexed mainly to 1-month LIBOR. The caps were purchased at a cost of $46.9 million. The
fair values of the caps will exhibit unrealized gains and losses in line with volatility and
direction of interest rates, but will ultimately decline to zero over the contractual life of
the caps if held to maturity. In a declining interest rate environment at March 31, 2011,
relative to December 31, 2010, fair values of purchased caps were exhibiting fair value
losses. At March 31, 2011, fair values of interest rate caps were $38.3 million, down from
$41.9 million at December 31, 2010. |
Swaps economically hedging instruments designated under the FVO The Bank hedges consolidated
obligation bonds and discount notes under the FVO. In a declining interest rate environment, the
interest rate swaps that were economic hedges of debt under the FVO were in fair value gain
positions. Such swaps are structured for the Bank to receive fixed rate cash flows and pay
floating rate (LIBOR-indexed) cash flows to swap counterparties. In a declining interest rate
environment, the fair values of the swaps would be in an unrealized fair value gain position. Such
gains will also decline to zero if held to maturity or to their call dates. In the 2011 first
quarter, net unrealized gains were $6.7 million, compared to $14.4 million in the same period in
2010.
64
The following tables summarize the impact of hedging activities on earnings (in thousands):
Table 1.12: Earnings Impact of Derivatives and Hedging Activities By Financial Instrument
Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPF |
|
|
Obligation |
|
|
Obligation |
|
|
Balance |
|
|
Intermediary |
|
|
|
|
Earnings Impact |
|
Advances |
|
|
Loans |
|
|
Bonds |
|
|
Discount Notes |
|
|
Sheet |
|
|
Positions1 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization/accretion of hedging
activities reported in net
interest income |
|
$ |
(2,215 |
) |
|
$ |
24 |
|
|
$ |
(468 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gains
(losses) on derivatives and
hedging activities |
|
|
56,337 |
|
|
|
|
|
|
|
1,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,134 |
|
Net gains (losses) derivatives-FVO |
|
|
|
|
|
|
|
|
|
|
6,604 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
6,699 |
|
Gains (losses)-economic hedges1 |
|
|
62 |
|
|
|
169 |
|
|
|
3,095 |
|
|
|
|
|
|
|
(3,589 |
) |
|
|
|
|
|
|
(263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (losses) gains
on derivatives and hedging activities |
|
|
56,399 |
|
|
|
169 |
|
|
|
11,496 |
|
|
|
95 |
|
|
|
(3,589 |
) |
|
|
|
|
|
|
64,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
54,184 |
|
|
$ |
193 |
|
|
$ |
11,028 |
|
|
$ |
95 |
|
|
$ |
(3,589 |
) |
|
$ |
|
|
|
$ |
61,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPF |
|
|
Obligation |
|
|
Obligation |
|
|
Balance |
|
|
Intermediary |
|
|
|
|
Earnings Impact |
|
Advances |
|
|
Loans |
|
|
Bonds |
|
|
Discount Notes |
|
|
Sheet |
|
|
Positions |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization/accretion of hedging
activities reported in net
interest income |
|
$ |
(96 |
) |
|
$ |
21 |
|
|
$ |
(966 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gains
(losses) on derivatives and
hedging activities |
|
|
619 |
|
|
|
|
|
|
|
4,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,623 |
|
Net gains
(losses) derivatives-FVO |
|
|
|
|
|
|
|
|
|
|
14,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,389 |
|
Gains (losses)-economic hedges |
|
|
(3,643 |
) |
|
|
149 |
|
|
|
13,296 |
|
|
|
1,296 |
|
|
|
(30,493 |
) |
|
|
20 |
|
|
|
(19,375 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (losses) gains
on derivatives and hedging activities |
|
|
(3,024 |
) |
|
|
149 |
|
|
|
31,689 |
|
|
|
1,296 |
|
|
|
(30,493 |
) |
|
|
20 |
|
|
|
(363 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(3,120 |
) |
|
$ |
170 |
|
|
$ |
30,723 |
|
|
$ |
1,296 |
|
|
$ |
(30,493 |
) |
|
$ |
20 |
|
|
$ |
(1,404 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes de minimis amount of fair value for intermediary positions for three months
ended March 31, 2011 |
Cash Flow Hedges
From time-to-time, the Bank executes interest rate swaps on the anticipated issuance of debt to
lock in a spread between the earning asset and the cost of funding. The hedges are accounted
under cash flow hedging rules and the effective portion of changes in the fair values of the swaps
is recorded in AOCI. The ineffective portion is recorded through net income. The swap is
terminated upon issuance of the debt instrument, and amounts reported in AOCI are reclassified to
earnings in the periods in which earnings are affected by the variability of the cash flows of the
debt that was issued. The maximum period of time that the Bank typically hedges to exposure to the
variability in future cash flows for forecasted transactions is between three and six months. At
March 31, 2011, the Bank had open contracts of $55.0 million of swaps to hedge the anticipated
issuances of debt. The fair values of the open contracts recorded in AOCI amounted to an
unrealized gain of $0.4 million at March 31, 2011.
No amounts were reclassified from AOCI into earnings as a result of the discontinuance of cash flow
hedges, because it became probable that the original forecasted transactions would not occur by the
end of the originally specified time period or within a two-month period thereafter in any periods
in this report. Ineffectiveness from hedges designated as cash flow hedges was not material in any
periods reported in this Form 10-Q. Over the next 12 months, it is expected that $3.7 million of
net losses recorded in AOCI will be recognized as an interest expense.
In the 2011 first quarter, the Bank executed long-term pay-fixed receive 3-month LIBOR-indexed
interest rate swap that was designated as cash flow hedges of a rollover financing program
involving the sequential issuances of fixed-rate 3-month term discount notes over the same period
as the term of the swap. The objective of the hedge is to offset the variability of cash flows,
attributable to changes in benchmark interest rate (3-month LIBOR), due to the rollover of its
fixed-rate 91 day discount notes issued in parallel with the cash flow payments of the swap every
91 days through till the maturity of the swap. Changes in the cash flows of the interest rate swap
are expected to be highly effective at offsetting the changes in the interest element of the cash
flows related to the forecasted issuance of the 91 day discount note. The maximum period of time
that the Bank hedged exposure to the variability in future cash flows in this program is three
months. At March 31, 2011, the Bank had open contracts of $150.0 million of swaps to hedge the
anticipated issuances of discount notes under this program. The fair values of the open contracts
recorded in AOCI amounted to an unrealized gain of $1.9 million at March 31, 2011.
65
Derivative gains and losses reclassified from Accumulated other comprehensive income (loss) to
current period income The following table summarizes changes in derivative gains and (losses) and
reclassifications into earnings from AOCI in the Statements of Condition (in thousands):
Table 1.13: Accumulated Other Comprehensive Income (Loss) to Current Period Income from Cash
Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Accumulated other comprehensive income/(loss) from cash flow hedges |
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
(15,196 |
) |
|
$ |
(22,683 |
) |
Net hedging transactions |
|
|
2,690 |
|
|
|
392 |
|
Reclassified into earnings |
|
|
1,038 |
|
|
|
1,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
(11,468 |
) |
|
$ |
(20,551 |
) |
|
|
|
|
|
|
|
Debt extinguishment and sale of investment securities
The Bank retires debt principally to reduce future debt costs when the associated asset is either
prepaid or terminated early, and less frequently from prepayments of mortgage-backed securities.
When assets are prepaid ahead of their expected or contractual maturities, the Bank also attempts
to extinguish debt (consolidated obligation bonds) in order to realign asset and liability cash
flow patterns. Bond retirement typically requires a payment of a premium resulting in a loss. The
Bank typically receives prepayment fees when assets are prepaid, and the FHLBNY typically remains
economically indifferent. From time to time, the bank may sell investment securities classified as
available-for-sale, or on an isolated basis may be asked by the issuer of a security which the Bank
has classified as held-to-maturity (HTM) to redeem the investment security.
The following table summarizes such activities (in thousands):
Table 1.14: Gains (Losses) on Sale and Extinguishment of Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Carrying Value |
|
|
Gains/(Losses) |
|
|
Carrying Value |
|
|
Gains/(Losses) |
|
Extinguishment of CO Bonds |
|
$ |
327,345 |
|
|
$ |
(34,409 |
) |
|
$ |
|
|
|
$ |
|
|
Transfer of CO Bonds to Other FHLBanks |
|
$ |
150,049 |
|
|
$ |
(17,332 |
) |
|
$ |
|
|
|
$ |
|
|
Operating Expenses, Compensation and Benefits, and Other Expenses 2011 first quarter
compared to 2010 first quarter
Operating expenses included the administrative and overhead costs of operating the Bank, as well as
the operating costs of providing advances and managing collateral associated with the advances,
managing the investment portfolios, and providing correspondent banking services to members.
Operating Expenses of the FHLBNY were $7.5 million in the 2011 first quarter, up from $6.3 million
in the same period in 2010. Compensation and benefits rose to $38.9 million in the 2011 period, up
from $12.9 million in the same period in 2010. In March 2011, the FHLBNY contributed $24.0 million
to its Defined Benefit Plan to eliminate a funding shortfall and this amount was charged to Net
income. The FHLBNY was also assessed for its share of the operating expenses for the Finance
Agency and the Office of Finance, and those totaled $3.4 million in the 2011 first quarter, up from
$2.4 million in the same period in 2010. The 12 FHLBanks and two other GSEs share the
administrative cost of the Finance Agency.
Operating Expenses
The following table sets forth the major categories of operating expenses (dollars in thousands):
Table 1.15: Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
Percentage of |
|
|
|
2011 |
|
|
Total |
|
|
2010 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary workers |
|
$ |
47 |
|
|
|
0.62 |
% |
|
$ |
39 |
|
|
|
0.61 |
% |
Occupancy |
|
|
1,113 |
|
|
|
14.78 |
|
|
|
1,062 |
|
|
|
16.75 |
|
Depreciation and leasehold amortization |
|
|
1,399 |
|
|
|
18.58 |
|
|
|
1,366 |
|
|
|
21.54 |
|
Computer service agreements and contractual services |
|
|
2,575 |
|
|
|
34.20 |
|
|
|
1,901 |
|
|
|
29.97 |
|
Professional and legal fees |
|
|
798 |
|
|
|
10.60 |
|
|
|
542 |
|
|
|
8.55 |
|
Other * |
|
|
1,598 |
|
|
|
21.22 |
|
|
|
1,432 |
|
|
|
22.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
7,530 |
|
|
|
100.00 |
% |
|
$ |
6,342 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
$ |
7,559 |
|
|
|
19.39 |
% |
|
$ |
6,963 |
|
|
|
54.00 |
% |
Employee benefits |
|
|
31,422 |
|
|
|
80.61 |
|
|
|
5,931 |
|
|
|
46.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Compensation and Benefits |
|
$ |
38,981 |
|
|
|
100.00 |
% |
|
$ |
12,894 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Agency and Office of Finance |
|
$ |
3,397 |
|
|
|
|
|
|
$ |
2,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Other primarily represents audit fees, director fees and expenses, insurance and
telecommunications. |
66
Assessments 2011 first quarter compared to 2010 first quarter
Each FHLBank is required to set aside a portion of earnings to fund its Affordable Housing Program
(AHP) and to satisfy its Resolution Funding Corporation assessment (REFCORP). For more
information, see Affordable Housing Program and Other Mission Related Programs and Assessments
under ITEM 1 BUSINESS in Form 10-K filed on March 25, 2011.
Affordable Housing Program obligations - The Bank fulfills its AHP obligations primarily through
direct grants to members, who use the funds to assist in the purchase, construction, or
rehabilitation of housing for very low-, low-, and moderate-income households. Annually, the
FHLBNY sets aside 10 percent from its pre-assessment regulatory net income for the Affordable
Housing Program. Regulatory net income is defined as GAAP net income before interest expense on
mandatorily redeemable capital stock and the assessment for AHP, but after the assessment for
REFCORP. The amounts set aside are considered as the Banks liability towards its Affordable
Housing Program obligations. AHP grants and subsidies are provided to members out of this
liability.
The following table provides roll-forward information with respect to changes in Affordable Housing
Program liabilities (in thousands):
Table 2.1: Affordable Housing Program Liabilities
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
138,365 |
|
|
$ |
144,489 |
|
Additions from current periods assessments |
|
|
7,969 |
|
|
|
6,126 |
|
Net disbursements for grants and programs |
|
|
(11,203 |
) |
|
|
(4,955 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
135,131 |
|
|
$ |
145,660 |
|
|
|
|
|
|
|
|
REFCORP The following table provides roll-forward information with respect to changes in
REFCORP liabilities (in thousands):
Table 2.2: REFCORP
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
21,617 |
|
|
$ |
24,234 |
|
Additions from current periods assessments |
|
|
17,745 |
|
|
|
13,410 |
|
Net disbursements to REFCORP |
|
|
(20,627 |
) |
|
|
(16,027 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
18,735 |
|
|
$ |
21,617 |
|
|
|
|
|
|
|
|
67
Financial Condition (dollars in thousands):
Table 3.1:Statements of Condition Period-Over-Period Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in |
|
|
Net change in |
|
(Dollars in thousands) |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
dollar amount |
|
|
percentage |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
2,953,801 |
|
|
$ |
660,873 |
|
|
$ |
2,292,928 |
|
|
|
346.95 |
% |
Federal funds sold |
|
|
5,093,000 |
|
|
|
4,988,000 |
|
|
|
105,000 |
|
|
|
2.11 |
|
Available-for-sale securities |
|
|
3,719,024 |
|
|
|
3,990,082 |
|
|
|
(271,058 |
) |
|
|
(6.79 |
) |
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
8,042,487 |
|
|
|
7,761,192 |
|
|
|
281,295 |
|
|
|
3.62 |
|
Advances |
|
|
75,487,377 |
|
|
|
81,200,336 |
|
|
|
(5,712,959 |
) |
|
|
(7.04 |
) |
Mortgage loans held-for-portfolio |
|
|
1,270,891 |
|
|
|
1,265,804 |
|
|
|
5,087 |
|
|
|
0.40 |
|
Derivative assets |
|
|
24,964 |
|
|
|
22,010 |
|
|
|
2,954 |
|
|
|
13.42 |
|
Other assets |
|
|
282,290 |
|
|
|
323,773 |
|
|
|
(41,483 |
) |
|
|
(12.81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
96,873,834 |
|
|
$ |
100,212,070 |
|
|
$ |
(3,338,236 |
) |
|
|
(3.33 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand |
|
$ |
2,465,860 |
|
|
$ |
2,401,882 |
|
|
$ |
63,978 |
|
|
|
2.66 |
% |
Non-interest bearing demand |
|
|
2,971 |
|
|
|
9,898 |
|
|
|
(6,927 |
) |
|
|
(69.98 |
) |
Term |
|
|
43,800 |
|
|
|
42,700 |
|
|
|
1,100 |
|
|
|
2.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
2,512,631 |
|
|
|
2,454,480 |
|
|
|
58,151 |
|
|
|
2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds |
|
|
68,529,981 |
|
|
|
71,742,627 |
|
|
|
(3,212,646 |
) |
|
|
(4.48 |
) |
Discount notes |
|
|
19,507,159 |
|
|
|
19,391,452 |
|
|
|
115,707 |
|
|
|
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated obligations |
|
|
88,037,140 |
|
|
|
91,134,079 |
|
|
|
(3,096,939 |
) |
|
|
(3.40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable capital stock |
|
|
59,126 |
|
|
|
63,219 |
|
|
|
(4,093 |
) |
|
|
(6.47 |
) |
|
|
Derivative liabilities |
|
|
839,710 |
|
|
|
954,898 |
|
|
|
(115,188 |
) |
|
|
(12.06 |
) |
Other liabilities |
|
|
482,200 |
|
|
|
461,025 |
|
|
|
21,175 |
|
|
|
4.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
91,930,807 |
|
|
|
95,067,701 |
|
|
|
(3,136,894 |
) |
|
|
(3.30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
4,943,027 |
|
|
|
5,144,369 |
|
|
|
(201,342 |
) |
|
|
(3.91 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital |
|
$ |
96,873,834 |
|
|
$ |
100,212,070 |
|
|
$ |
(3,338,236 |
) |
|
|
(3.33 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet overview- March 31, 2011 compared to December 31, 2010
The FHLBNY experienced steady balance sheet contraction in the 2011
first quarter, in parallel with
the decline in Advances to $75.5 billion at March 31, 2011 from $81.2 billion at December 31, 2010.
Reported balances include fair value basis of hedged advances. The decline in demand for member
borrowings has occurred as member banks have taken advantage of improved availability of alternate funding sources such as deposits and senior unsecured borrowings in a more liquid market. Member demand for borrowed advances has also declined, as loan demand from members customers may have stayed lukewarm due to nationally weak economic conditions.
Advances At March 31, 2011, the FHLBNYs Total assets were $96.9 billion, a decrease of 3.3%, or $3.3 billion from December 31, 2010. The Banks balance sheet management strategy has been to keep balance sheet growth or decline in line with the changes in member demand for advances, which declined 7.0%.
Table
3.2:Advance Graph
68
Investments The FHLBNYs investment strategies continue to be restrained, and acquisitions
were limited to investments in mortgage-backed securities (MBS) issued by GSEs and U.S.
government agencies. Acquisitions even in such securities have been made when they justified the
Banks risk-reward preferences.
Market pricing of GSE-issued MBS was substantially all in net unrealized fair value gain
positions. Fair values of the Banks private-label securities also improved at March 31, 2011
relative to December 31, 2010, but were still depressed, as market conditions for such securities
remained uncertain. For more information about fair values of AFS and HTM securities, see Note 16
Fair Values of Financial Instruments.
Leverage At March 31, 2011, balance sheet leverage was 19.6 times shareholders equity,
compared to 19.5 times capital at December 31, 2010. The Banks balance sheet management strategy
is to keep the balance sheet change in line with the changes in member demand for advances,
although from time to time the Bank may maintain excess liquidity investments to meet unexpected
member demand for funds. Increases or decreases in investments have a direct impact on leverage,
but generally growth in or shrinkage of advances does not significantly impact balance sheet
leverage under existing capital stock management practices. This is because changes in
shareholders capital are in line with changes in advances, and the ratio of assets to capital
generally remains unchanged. Under existing capital management practices, members are required to
purchase capital stock to support their borrowings from the Bank, and when capital stock is in
excess of the amount that is required to support advance borrowings, the Bank redeems the excess
capital stock immediately. Therefore, stockholders capital increases and decreases with members
advance borrowings, and the capital to asset ratios remain relatively unchanged. As capital
increases or declines in line with higher or lower volumes of advances, the Bank may also adjust
its assets by increasing or decreasing holdings of short-term investments in certificates of
deposit, and, to some extent, its positions in Federal funds sold, which it inventories to
accommodate unexpected member needs for liquidity.
Debt The primary source of funds for the FHLBNY continued to be the issuance of
consolidated obligation bonds and discount notes. Discount notes are consolidated obligations with
maturities up to one year, and consolidated bonds have maturities of one year or longer. The mix
between the use of discount notes and bonds to finance the Banks balance sheet assets has remained
almost unchanged at March 31, 2011 from December 31, 2010.
Liquidity and Short-term Debt The following table summarizes the FHLBNYs short-term debt (in
thousands). Also see Tables 7.1 7.10 and 10.4 for additional information.
Table 3.3: Shortterm debt
|
|
|
|
|
|
|
|
|
|
|
Short Term Liquidity |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
Consolidated Obligations-Discount Notes 1 |
|
$ |
19,507,159 |
|
|
$ |
19,391,452 |
|
|
Consolidated Obligations-Bonds With Original Maturities of One Year or Less
2 |
|
$ |
9,635,000 |
|
|
$ |
12,410,000 |
|
|
|
|
1 |
|
Outstanding at end of the period carrying value |
|
2 |
|
Outstanding at end of the period par value |
The FHLBNYs liquid assets included cash at the FRB, federal funds sold, and a portfolio of
highly rated GSE securities that were available-for-sale.
The FHLBanks GSE status enables the FHLBanks, including FHLBNY, to fund its consolidated obligation
debt at tight margins to U.S. Treasury. These are discussed in more detail under Debt Financing
and Consolidated Obligations in this MD&A. The FHLBNYs internal source of liquidity position
remains strong, and was in compliance with all regulatory requirements. Management does not
foresee any changes to that position.
Among other liquidity measures, the FHLBNY is required to maintain sufficient liquidity, through
short-term investments, in an amount at least equal to that Banks anticipated cash outflows under
two different scenarios. The first scenario assumes that the FHLBNY cannot access the capital
markets for 15 days and that during that time, members do not renew their maturing, prepaid and
called advances. The second scenario assumes that the FHLBNY cannot access the capital market for
five days and that during that period, members renew maturing and called advances. The FHLBNY was
in compliance within these scenarios.
The FHLBNY also has in place other liquidity measures Deposit Liquidity and Operational
Liquidity indicated that the FHLBNYs liquidity buffers were in excess of required reserves. For
more information about the FHLBNYs liquidity measures and see section Liquidity, Short-term
borrowings and Short-term Debt in this MD&A.
69
Advances
The FHLBNYs primary business is making collateralized loans, known as advances, to members.
Member demand for advance borrowings has steadily declined in the 2011 first quarter, a continuing
trend from 2010. Member prepayments were significant but were largely concentrated on the
prepayments of putable fixed-rate advances, which were replaced almost immediately by medium and
short-term fixed-rate advances without the put option.
Generally, the growth or decline in advances is reflective of demand by members for both short-term
liquidity and term funding driven by economic factors such as availability to the Banks members of
alternative funding sources that are more attractive, or by the interest rate environment and the
outlook for the economy. Members may choose to prepay advances (which may generate prepayment
penalty fees) based on their expectations of interest rate changes and demand for liquidity.
Advance volume is also influenced by merger activity where members are either acquired by
non-members or acquired by members of another FHLBank. When FHLBNY members are acquired by members
of another FHLBank or a non-member, the former members no longer qualify for membership and the
FHLBNY may not offer renewals or additional advances to the former members. Subsequent to the
merger, maturing advances may not be replaced, which has an immediate impact on short-term and
overnight lending if the former member borrowed short-term and overnight advances.
Advances Product Types
The following table summarizes par values of advances by product type (dollars in thousands):
Table 4.1: Advances by Product Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amounts |
|
|
of Total |
|
|
Amounts |
|
|
of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable Rate Credit ARCs |
|
$ |
8,016,000 |
|
|
|
11.09 |
% |
|
$ |
8,121,000 |
|
|
|
10.56 |
% |
Fixed Rate Advances |
|
|
58,304,095 |
|
|
|
80.64 |
|
|
|
64,557,112 |
|
|
|
83.91 |
|
Short-Term Advances |
|
|
3,489,700 |
|
|
|
4.83 |
|
|
|
1,357,300 |
|
|
|
1.76 |
|
Mortgage Matched Advances |
|
|
466,114 |
|
|
|
0.64 |
|
|
|
479,934 |
|
|
|
0.62 |
|
Overnight & Line of Credit (OLOC) Advances |
|
|
1,024,295 |
|
|
|
1.42 |
|
|
|
1,402,696 |
|
|
|
1.82 |
|
All other categories |
|
|
1,000,067 |
|
|
|
1.38 |
|
|
|
1,021,497 |
|
|
|
1.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
72,300,271 |
|
|
|
100.00 |
% |
|
|
76,939,539 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP Advances |
|
|
(36 |
) |
|
|
|
|
|
|
(42 |
) |
|
|
|
|
Hedging adjustments |
|
|
3,187,142 |
|
|
|
|
|
|
|
4,260,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
75,487,377 |
|
|
|
|
|
|
$ |
81,200,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member demand for advance products
Fixed-rate advance products declined at March 31, 2011 primarily because of the prepayment of
fixed-rate putable advances. Borrowers have also remained reluctant to borrow long-term advances.
Much of the prepayments were immediately replaced by medium- and short-term advances, which also
explains the increase in Short-Term fixed rate advances.
Adjustable Rate Advances (ARC Advances) Demand for ARC advances has stabilized after a
declining trend in most of 2010. Generally, the FHLBNYs larger members have been the more
significant borrowers of ARCs.
ARC advances are medium- and long-term loans that can be linked to a variety of indices, such as
1-month LIBOR, 3-month LIBOR, the Federal funds rate, or Prime. Members use ARC advances to manage
interest rate and basis risks by efficiently matching the interest rate index and repricing
characteristics of floating-rate assets. The interest rate is set and reset (depending upon the
maturity of the advance and the type of index) at a spread to that designated index. Principal is
due at maturity and interest payments are due at each reset date, including the final payment date.
Fixed-rate Advances - Fixed-rate advances, comprising putable and non-putable advances, remain the
largest category of advances.
Member demand for fixed-rate advances has been soft in the 2011 first quarter and borrowings have
declined. Prepayments have been heavily concentrated in the fixed-rate putable advance. On
aggregate, maturing and prepaid advances have been replaced by short- and medium-term advances, as
members remain uncertain about locking into long-term advances perhaps because of unfavorable
pricing of longer-term advances or an uncertain outlook on the direction and timing of interest
rate changes, or lukewarm demand from members customer base for longer-term fixed-rate loans.
Fixed-rate advances are flexible funding tools that can be used by members to meet short- to
long-term liquidity needs. Terms vary from two days to 30 years.
70
A significant composition of Fixed-rate advances consists of advances with a put option feature
(putable advance). Historically, Fixed-rate putable advances have been more competitively priced
relative to fixed-rate bullet advances (without put option) because of the put feature that the
Bank purchases from the member, driving down the coupon on the advance. The price advantage of a
putable advance increases with the numbers of puts sold and the length of the term of a putable
advance. With a putable advance, the FHLBNY has the right to exercise the put option and terminate
the advance at predetermined exercise date(s), which the FHLBNY normally would exercise when
interest rates rise, and the borrower may then apply for a new advance at the then prevailing
coupon and terms. In the present interest rate environment, the price advantage has not been
significant because of constraints in offering longer-term-advances.
In the 2011 first quarter, maturing and prepaid putable advances were either not replaced or
replaced by bullet advance (without the put feature).
Short-term Advances Demand for Short-term fixed-rate advances had remained steady through most
of the 2011 first quarter and grew because borrowing member replaced some of the prepaid putable
advances with short-term advances to take advantage of the current low coupons.
Overnight advances Overnight borrowings remained soft, a continuation of the trend seen in 2010.
Member demand for the overnight Advances may also reflect the seasonal needs of certain member
banks for their short-term liquidity requirements. Some large members also use overnight advances
to adjust their balance sheet in line with their own leverage targets.
The overnight advances program gives members a short-term, flexible, readily accessible revolving
line of credit for immediate liquidity needs. Overnight Advances mature on the next business day,
at which time the advance is repaid.
Merger Activity
Merger activity is an important factor and, if significant, would contribute to an uneven
pattern in advance balances. Merger activity may result in the loss of new business if a member is
acquired by a non-member. The FHLBank Act does not permit new advances to replace maturing
advances to former members. Advances held by members who are acquired by non-members may remain
outstanding until their contractual maturities. Merger activity may also result in a decline in
the advance book if the acquired member decides to prepay existing advances partially or in full
depending on the post-merger liquidity needs.
The following table summarizes merger activity (dollars in thousands):
Table 4.2: Merger Activity
|
|
|
|
|
|
|
|
|
|
|
Merger Activity |
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Number of Non-Members 1 |
|
|
9 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Non-member advances outstanding
at period end |
|
$ |
833,928 |
|
|
$ |
1,840,960 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Members who became non-members because of mergers. |
The former members are not considered to have a significant borrowing potential.
Prepayment of Advances
Prepayment initiated by members or former members is another important factor that impacts
advances. The FHLBNY charges a prepayment fee when the member or a former member prepays certain
advances before the original maturity.
The following table summarizes prepayment activity (in thousands):
Table 4.3: Prepayment Activity
|
|
|
|
|
|
|
|
|
|
|
Prepayment Activity |
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Advances pre-paid at par |
|
$ |
7,107,367 |
|
|
$ |
180,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment fees |
|
$ |
42,743 |
|
|
$ |
701 |
|
|
|
|
|
|
|
|
For advances that are prepaid and hedged under hedge accounting rules, the FHLBNY generally
terminates the hedging relationship upon prepayment and adjusts the prepayment fees received for
the associated fair value basis of the hedged prepaid advance.
71
Advances Interest Rate Terms
The following table summarizes interest-rate payment terms for advances (dollars in thousands):
Table 4.4: Advances by Interest-Rate Payment Terms
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate |
|
$ |
64,284,271 |
|
|
|
88.91 |
% |
|
$ |
68,818,343 |
|
|
|
89.44 |
% |
Variable-rate |
|
|
8,008,000 |
|
|
|
11.08 |
|
|
|
8,113,000 |
|
|
|
10.55 |
|
Variable-rate capped |
|
|
8,000 |
|
|
|
0.01 |
|
|
|
8,000 |
|
|
|
0.01 |
|
Overdrawn demand deposit accounts |
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
72,300,271 |
|
|
|
100.00 |
% |
|
|
76,939,539 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP Advances |
|
|
(36 |
) |
|
|
|
|
|
|
(42 |
) |
|
|
|
|
Hedging basis adjustments |
|
|
3,187,142 |
|
|
|
|
|
|
|
4,260,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
75,487,377 |
|
|
|
|
|
|
$ |
81,200,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate borrowings remained popular with members but amounts borrowed have declined in line
with the overall decline in member demand for advances. The product is popular with members as
reflected by an increasing percentage of total advances outstanding. Variable-rate advances
outstanding declined in percentage terms and amounts outstanding. Member demand for
adjustable-rate LIBOR-based funding has been weak, as members may perceive the risk of a
combination of an unsettled interest rate environment and a steepening yield curve to make
variable-rate borrowing relatively unattractive from an interest-rate risk management perspective.
Variable-rate capped advances also declined in a declining interest rate environment. Typically,
capped ARCs are in demand by members only in a rising rate environment, as they would purchase cap
options from the FHLBNY to limit borrowers interest rate exposure. With a capped variable rate
advance, the FHLBNY had offsetting purchased cap options that mirrored the terms of the caps sold
to members, offsetting the FHLBNYs exposure on the advance.
The following table summarizes variable-rate advances by reference-index type (in thousands):
Table 4.5: Variable-Rate Advances
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
LIBOR indexed |
|
$ |
8,016,000 |
|
|
$ |
8,121,000 |
|
Overdrawn demand deposit accounts |
|
|
|
|
|
|
196 |
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,016,000 |
|
|
$ |
8,121,196 |
|
|
|
|
|
|
|
|
The following table summarizes maturity and yield characteristics of par amounts of advances
(dollars in thousands):
Table 4.6: Advances by Maturity and Yield Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
14,762,800 |
|
|
|
20.42 |
% |
|
$ |
14,384,651 |
|
|
|
18.70 |
% |
Due after one year |
|
|
49,521,471 |
|
|
|
68.50 |
|
|
|
54,433,692 |
|
|
|
70.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed-rate |
|
|
64,284,271 |
|
|
|
88.92 |
|
|
|
68,818,343 |
|
|
|
89.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
|
2,353,000 |
|
|
|
3.25 |
|
|
|
2,488,196 |
|
|
|
3.23 |
|
Due after one year |
|
|
5,663,000 |
|
|
|
7.83 |
|
|
|
5,633,000 |
|
|
|
7.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Variable-rate |
|
|
8,016,000 |
|
|
|
11.08 |
|
|
|
8,121,196 |
|
|
|
10.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
72,300,271 |
|
|
|
100.00 |
% |
|
|
76,939,539 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP Advances |
|
|
(36 |
) |
|
|
|
|
|
|
(42 |
) |
|
|
|
|
Hedging adjustments |
|
|
3,187,142 |
|
|
|
|
|
|
|
4,260,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
75,487,377 |
|
|
|
|
|
|
$ |
81,200,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
Impact of Derivatives and hedging activities to the balance sheet carrying values of Advances
Advance book values included fair value basis adjustments (hedging adjustments), which are
recorded under the hedge accounting provisions on hedged advances. When medium- and long-term
interest rates rise or fall, the fair values of fixed-rate advances move in the opposite direction.
The Bank hedges certain advances by the use of both cancellable and non-cancellable interest rate
swaps. These qualify as fair value hedges under the derivatives and hedge accounting rules.
Recorded fair value basis adjustments to advances in the Statements of Condition were a result of
these hedging activities. The Bank hedges the risk of changes in the benchmark rate, which the
FHLBNY has adopted as LIBOR and is also the discounting basis for computing changes in fair values
of hedged advances. Fair value changes of qualifying hedged advances under the derivatives and
hedge accounting rules are recorded in the Statements of Income as a Net realized and unrealized
gain (loss) on derivative and hedging activities, a component of Other income (loss). An offset is
recorded as a fair value basis adjustment to the carrying amount of the advances in the Statements
of Condition.
|
|
Derivative transactions are employed to hedge fixed-rate advances in the following manner
and to achieve the following principal objectives. The FHLBNY: |
|
|
Makes extensive use of the derivatives to restructure interest rates on fixed-rate
advances, both putable and non-putable (bullet), to better match the FHLBNYs cash flows, to
enhance yields, and to manage risk from a changing interest rate environment. |
|
|
Converts at the time of issuance, certain simple fixed-rate bullet and putable fixed-rate
advances into synthetic floating-rate advances by the simultaneous execution of interest rate
swaps that convert the cash flows of the fixed-rate advances to conventional adjustable rate
instruments tied to an index, typically 3-month LIBOR. |
|
|
Uses derivatives to manage the risks arising from changing market prices and volatility of
a fixed coupon advance by matching the cash flows of the advance to the cash flows of the
derivative, and making the FHLBNY indifferent to changes in market conditions. Putable
advances are typically hedged by an offsetting derivative with a mirror-image call option with
identical terms. |
|
|
Adjusts the reported carrying value of hedged fixed-rate advances for changes in their fair
value (fair value basis or fair value) that are attributable to the risk being hedged in
accordance with hedge accounting rules. Amounts reported for advances in the Statements of
Condition include fair value hedge basis adjustments. |
The most significant element that impacts balance sheet reporting of advances is the recording of
fair value basis adjustments to the carrying value of advances in the Statements of Condition. In
addition, when putable advances are hedged by cancellable swaps, the possibility of exercise of the
call shortens the expected maturity of the advance. The impact of derivatives to the Banks income
is discussed in this MD&A under Results of Operations. Fair value basis adjustments as measured
under the hedging rules are impacted by hedge volume, the interest rate environment, and the
volatility of the interest rates.
Hedge volume The Bank primarily hedges putable advances and certain bullet fixed-rate advances
that qualify under the hedging provisions of the accounting standards for derivatives and hedging,
and as economic hedges when the hedge accounting provisions are operationally difficult to
establish or a high degree of hedge effectiveness cannot be asserted.
The following table summarizes hedged advances by type of option features (in thousands):
Table 4.7: Hedged Advances by Type
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
Par Amount |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Qualifying Hedges |
|
|
|
|
|
|
|
|
Fixed-rate bullets |
|
$ |
29,590,412 |
|
|
$ |
26,562,821 |
|
Fixed-rate putable |
|
|
26,877,062 |
|
|
|
33,612,162 |
|
Fixed-rate callable |
|
|
305,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
Total Qualifying Hedges |
|
$ |
56,772,474 |
|
|
$ |
60,324,983 |
|
|
|
|
|
|
|
|
Aggregate par amount of advances hedged 1 |
|
$ |
56,866,249 |
|
|
$ |
60,461,327 |
|
|
|
|
|
|
|
|
Fair value basis (Qualifying hedging adjustments) |
|
$ |
3,187,142 |
|
|
$ |
4,260,839 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Either hedged economically or qualified under a hedge accounting rules |
Except for an insignificant notional amount of derivatives that were designated as economic
hedges of advances, hedged advances were in a qualifying hedging relationship under the accounting
standards for derivatives and hedging. (See Tables 9.1 9.5). No advances were designated under
the FVO. The FHLBNY typically hedges fixed-rate advances in order to convert fixed-rate cash flows
to LIBOR-indexed cash flows through the use of interest rate swaps.
The FHLBNY has allowed its fixed-rate putable advances to decline, and since almost all advances
with put or call features are hedged, the decline in hedged advances was consistent with the
contraction of fixed-rate putable advances. The put option in the advance is purchased by the
FHLBNY from the borrowing member and mirrors the cancellable swap option owned by the swap
counterparty. Under the terms of the put option, the Bank has the right to terminate the advance
at agreed-upon dates. The period until the option is exercisable is known as the lockout period.
If the advance is put by the FHLBNY at the end of the lockout period, the member can borrow an
advance
product of the members choice at the then-prevailing market rates and at the then-existing terms
and conditions.
73
Fair value basis adjustments - Fair value gains were consistent with the higher contractual coupons
of hedged
long-and medium-term fixed-rate advances. These advances had been issued at prior years at the
then-prevailing higher interest rate environment compared to the lower interest rate environment at
the balance sheet dates that were projecting forward rates below the contractual coupons of hedged
fixed-rate advances. Fixed-rate advances, in a lower interest rate environment relative to the
coupons of the advances, will exhibit net unrealized fair value basis gains.
The period-over-period decrease in net fair value basis adjustments of hedged Advances was
primarily caused by (1) the upward shift (albeit small) of the forward swap interest rates at the
current period end compared to December 31, 2010, as displayed below. As future swap rates
increase, the higher contractual coupons of the advances become less valuable and fair value
gains decline, and (2) lower amounts (volume effects) of hedged advances.
Unrealized gains from fair value basis adjustments to advances were almost entirely offset by net
fair value unrealized losses of the derivatives associated with the fair value hedges of advances,
thereby achieving the Banks hedging objectives of mitigating fair value basis risk.
74
Advances Call Dates and Exercise Options
The table below offers a view of the advance portfolio with the possibility of the exercise of the
put option that is controlled by the FHLBNY, and put dates are summarized into similar maturity
tenors as the previous table that summarizes advances by contractual maturities (dollars in
thousands).
Table 4.9: Advances by Put/Call Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
|
Amount |
|
|
Total |
|
|
Amount |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdrawn demand deposit accounts |
|
$ |
|
|
|
|
|
% |
|
$ |
196 |
|
|
|
|
% |
Due or putable\callable in one year or less1 |
|
|
42,893,112 |
|
|
|
59.33 |
|
|
|
49,443,712 |
|
|
|
64.26 |
|
Due or putable after one year through two years |
|
|
10,116,744 |
|
|
|
13.99 |
|
|
|
8,889,867 |
|
|
|
11.55 |
|
Due or putable after two years through three years |
|
|
7,502,977 |
|
|
|
10.38 |
|
|
|
6,959,596 |
|
|
|
9.05 |
|
Due or putable after three years through four years |
|
|
4,276,457 |
|
|
|
5.91 |
|
|
|
4,744,502 |
|
|
|
6.17 |
|
Due or putable after four years through five years |
|
|
4,428,259 |
|
|
|
6.12 |
|
|
|
4,145,209 |
|
|
|
5.39 |
|
Due or putable after five years through six years |
|
|
694,951 |
|
|
|
0.96 |
|
|
|
815,948 |
|
|
|
1.06 |
|
Thereafter |
|
|
2,387,771 |
|
|
|
3.31 |
|
|
|
1,940,509 |
|
|
|
2.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
72,300,271 |
|
|
|
100.00 |
% |
|
|
76,939,539 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount on AHP advances |
|
|
(36 |
) |
|
|
|
|
|
|
(42 |
) |
|
|
|
|
Hedging adjustments |
|
|
3,187,142 |
|
|
|
|
|
|
|
4,260,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
75,487,377 |
|
|
|
|
|
|
$ |
81,200,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Due or putable in one year or less includes five callable advances. |
Contrasting advances by contractual maturity dates (See Tables 4.1 4.9) with potential put
dates illustrates the impact of hedging on the effective duration of the Banks advances. The
Banks advances borrowed by members include a significant amount of putable advances in which the
Bank has purchased from members the option to terminate advances at agreed-upon dates. Typically,
almost all putable advances are hedged by cancellable interest rate swaps in which the derivative
counterparty has the right to exercise and terminate the swap at par at agreed upon dates. Under
current hedging practices, when the swap counterparty exercises its right to call the cancellable
swap, the Bank would typically also exercise its right to put the advance at par. Under this
hedging practice, on a put option basis, the potential exercised maturity is significantly
accelerated, and is an important factor in the Banks current hedge strategy.
The following table summarizes notional amounts of advances that were still putable or callable
(one or more pre-determined option exercise dates remaining) (in thousands):
Table 4.10: Putable and Callable Advances
|
|
|
|
|
|
|
|
|
|
|
Advances |
|
|
|
March 31, 2011* |
|
|
December 31, 2010* |
|
Putable |
|
$ |
27,787,662 |
|
|
$ |
34,651,912 |
|
|
|
|
|
|
|
|
No-longer putable |
|
$ |
2,383,600 |
|
|
$ |
2,581,100 |
|
|
|
|
|
|
|
|
Callable |
|
$ |
305,000 |
|
|
$ |
150,000 |
|
|
|
|
|
|
|
|
The FHLBNY has allowed its fixed-rate putable advances to decline and member borrowings have
been weak for putable advances, which are typically medium and long-term. Significant prepayment
of putable advances was the primary cause of the decline.
Investments
The FHLBNY maintains investments for liquidity purposes, to manage stock repurchases and
redemptions, to provide additional earnings, and to ensure the availability of funds to meet the
credit needs of its members. The FHLBNY also maintains longer-term investment portfolios, which
are principally mortgage-backed securities issued by government-sponsored mortgage agencies, a
smaller portfolio of MBS issued by private enterprises, and securities issued by state or local
housing finance agencies. Finance Agency regulations prohibit the FHLBanks,
including the FHLBNY, from investing in certain types of securities and limit the investment in
mortgage- and asset-backed securities.
Investments Policies and Practices
Finance Agency regulations limit investment in housing-related obligations of state and local
governments and their housing finance agencies to obligations that carry ratings of double-A or
higher. Mortgage- and asset-backed securities acquired must carry the highest ratings from Moodys
Investors Service (Moodys) or Standard & Poors Rating Services (S&P) at the time of purchase.
Finance Agency regulations further limit the mortgage- and asset-backed investments of each
FHLBank to 300 percent of that FHLBanks capital. The FHLBNY was within the 300 percent limit for
all periods reported. The FHLBNYs investment in mortgage-backed securities during all periods
reported complied with FHLBNYs Board-approved policy of acquiring mortgage-backed securities
issued or guaranteed by the government-sponsored housing enterprises, or prime residential
mortgages rated triple-A by both Moodys and Standard & Poors rating services at acquisition.
75
The FHLBNYs practice is not to lend unsecured funds to members, including overnight Federal funds
and certificates of deposit. The FHLBNY does not preclude or specifically seek out investments any
differently than it would in the normal course of acquiring securities for investments, unless it
is prohibited by existing regulations. Unsecured lending to members is not prohibited by Finance
Agency regulations or Board of Directors policy. The FHLBNY is prohibited from purchasing a
consolidated obligation issued directly by another FHLBank, but may acquire consolidated
obligations for investment in the secondary market after the bond settles. There were no
investments in consolidated obligations by the FHLBNY at periods in this report.
The following table summarizes changes in investments by categories (including held-to-maturity
securities, available-for-sale securities, and money market investments). No securities classified
as available-for-sale were OTTI (dollars in thousands):
Table 5.1: Investments by Categories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Variance |
|
|
Variance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local housing finance agency
obligations 1 |
|
$ |
755,712 |
|
|
$ |
770,609 |
|
|
$ |
(14,897 |
) |
|
|
(1.93 |
)% |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities, at fair
value |
|
|
3,708,872 |
|
|
|
3,980,135 |
|
|
|
(271,263 |
) |
|
|
(6.82 |
) |
Held-to-maturity
securities, at
carrying value |
|
|
7,286,775 |
|
|
|
6,990,583 |
|
|
|
296,192 |
|
|
|
4.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities |
|
|
11,751,359 |
|
|
|
11,741,327 |
|
|
|
10,032 |
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor trusts 2 |
|
|
10,152 |
|
|
|
9,947 |
|
|
|
205 |
|
|
|
2.06 |
|
Federal funds sold |
|
|
5,093,000 |
|
|
|
4,988,000 |
|
|
|
105,000 |
|
|
|
2.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
16,854,511 |
|
|
$ |
16,739,274 |
|
|
$ |
115,237 |
|
|
|
0.69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Classified as held-to-maturity securities, at carrying value. |
|
2 |
|
Classified as available-for-sale securities, at fair value and represents investments in
registered mutual funds
and other fixed-income securities maintained under the grantor trusts. |
Long-Term Investments
Investments with original long-term contractual maturities were comprised of mortgage- and
asset-backed securities, and investment in securities issued by state and local housing agencies.
These investments were classified either as Held-to-maturity or as Available-for-sale
securities in accordance with accounting standard on investments in debt and equity securities as
amended by the guidance on recognition and presentation of other-than-temporary impairments. The
Bank owns a grantor trust to fund current and potential future payments to retirees for
supplemental pension plan obligations. The trust fund is invested in fixed-income and equity
funds, which were classified as available-for-sale.
Mortgage-Backed Securities By Issuer
Issuer composition of held-to-maturity mortgage-backed securities was as follows (carrying values;
dollars in thousands):
Table 5.2: Held-to-maturity mortgage-backed Securities By Issuer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Percentage |
|
|
December 31, |
|
|
Percentage |
|
|
|
2011 |
|
|
of Total |
|
|
2010 |
|
|
of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored enterprise residential mortgage-backed securities |
|
$ |
5,659,761 |
|
|
|
77.67 |
% |
|
$ |
5,528,792 |
|
|
|
79.09 |
% |
U.S. agency residential mortgage-backed securities |
|
|
107,456 |
|
|
|
1.47 |
|
|
|
116,126 |
|
|
|
1.66 |
|
U.S. government sponsored enterprise commercial
mortgage-backed securities |
|
|
707,826 |
|
|
|
9.71 |
|
|
|
476,393 |
|
|
|
6.81 |
|
U.S. agency commercial mortgage-backed securities |
|
|
44,408 |
|
|
|
0.61 |
|
|
|
48,748 |
|
|
|
0.70 |
|
Private-label issued securities backed by home equity loans |
|
|
341,464 |
|
|
|
4.69 |
|
|
|
351,455 |
|
|
|
5.03 |
|
Private-label issued residential mortgage-backed securities |
|
|
254,794 |
|
|
|
3.50 |
|
|
|
292,477 |
|
|
|
4.18 |
|
Private-label issued securities backed by manufactured housing
loans |
|
|
171,066 |
|
|
|
2.35 |
|
|
|
176,592 |
|
|
|
2.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-maturity
securities-mortgage-backed
securities |
|
$ |
7,286,775 |
|
|
|
100.00 |
% |
|
$ |
6,990,583 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
76
Held-to-maturity mortgage- and asset-backed securities (MBS) The Banks conservative
purchasing practices over the years are evidenced by the high concentration of MBS issued by the
GSEs.
Local and housing finance agency bonds The FHLBNY had investments in primary public and
private placements of taxable obligations of state and local housing finance authorities (HFA)
classified as held-to-maturity. Investments in state and local housing finance bonds help to fund
mortgages that finance low- and moderate-income housing.
Available-for-sale securities The FHLBNY classifies investments that it may sell before maturity
as available-for-sale (AFS) and carries them at fair value. Fair value changes are recorded in
AOCI until the security is sold or is anticipated to be sold. Composition of FHLBNYs
available-for-sale securities was as follows (dollars in thousands):
Table 5.3: Available-for-Sale Securities Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Percentage |
|
|
December 31, |
|
|
Percentage |
|
|
|
2011 |
|
|
of Total |
|
|
2010 |
|
|
of Total |
|
Fannie Mae |
|
$ |
2,309,122 |
|
|
|
62.26 |
% |
|
$ |
2,478,313 |
|
|
|
62.26 |
% |
Freddie Mac |
|
|
1,329,160 |
|
|
|
35.84 |
|
|
|
1,429,900 |
|
|
|
35.93 |
|
Ginnie Mae |
|
|
70,590 |
|
|
|
1.90 |
|
|
|
71,922 |
|
|
|
1.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS mortgage-backed securities |
|
|
3,708,872 |
|
|
|
100.00 |
% |
|
|
3,980,135 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grantor Trusts Mutual funds |
|
|
10,152 |
|
|
|
|
|
|
|
9,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS portfolio |
|
$ |
3,719,024 |
|
|
|
|
|
|
$ |
3,990,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the mortgage-backed securities in the AFS portfolio were issued by Fannie Mae, Freddie
Mac, or a U.S. agency. The Bank also has a grantors trust designed to fund current and potential
future payments to retirees for supplemental pension plan obligations. The funds are invested in
money market funds, fixed-income and equity funds, and are designated as available-for-sale.
External rating information of the held-to-maturity portfolio was as follows. (Carrying values; in
thousands):
Table 5.4: External Ratings of the Held-to-Maturity Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
Investment |
|
|
|
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Grade |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
6,737,651 |
|
|
$ |
264,513 |
|
|
$ |
105,873 |
|
|
$ |
4,668 |
|
|
$ |
174,070 |
|
|
$ |
7,286,775 |
|
State and local housing finance agency obligations |
|
|
71,344 |
|
|
|
617,163 |
|
|
|
|
|
|
|
67,205 |
|
|
|
|
|
|
|
755,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term securities |
|
$ |
6,808,995 |
|
|
$ |
881,676 |
|
|
$ |
105,873 |
|
|
$ |
71,873 |
|
|
$ |
174,070 |
|
|
$ |
8,042,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
Investment |
|
|
|
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Grade |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
6,463,552 |
|
|
$ |
266,567 |
|
|
$ |
87,796 |
|
|
$ |
17,446 |
|
|
$ |
155,222 |
|
|
$ |
6,990,583 |
|
State and local housing finance agency obligations |
|
|
71,461 |
|
|
|
631,943 |
|
|
|
|
|
|
|
67,205 |
|
|
|
|
|
|
|
770,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-term securities |
|
$ |
6,535,013 |
|
|
$ |
898,510 |
|
|
$ |
87,796 |
|
|
$ |
84,651 |
|
|
$ |
155,222 |
|
|
$ |
7,761,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External rating information of the available-for-sale portfolio was as follows (the carrying
values of AFS investments are at fair values; in thousands):
Table 5.5: External Ratings of the Available-for-Sale Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Unrated |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities 1 |
|
$ |
3,708,872 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,708,872 |
|
Other Grantor trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,152 |
|
|
|
10,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,708,872 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,152 |
|
|
$ |
3,719,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
AAA-rated |
|
|
AA-rated |
|
|
A-rated |
|
|
BBB-rated |
|
|
Unrated |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities 1 |
|
$ |
3,980,135 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,980,135 |
|
Other Grantor trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,947 |
|
|
|
9,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,980,135 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,947 |
|
|
$ |
3,990,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
GSE and U.S. Obligations |
77
Weighted average rates Mortgage-backed securities (HTM and AFS)
The following table summarizes weighted average rates and amounts by contractual maturities. A
significant portion of the MBS portfolio consisted of floating-rate securities and the weighted
average rates will change in parallel with changes in the LIBOR rate (dollars in thousands):
Table 5.6: Mortgage-Backed Securities Weighted Average Rates by Contractual Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized |
|
|
Weighted |
|
|
Amortized |
|
|
Weighted |
|
|
|
Cost |
|
|
Average Rate |
|
|
Cost |
|
|
Average Rate |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Due after one year through five years |
|
|
1,502 |
|
|
|
6.25 |
|
|
|
1,730 |
|
|
|
6.25 |
|
Due after five years through ten years |
|
|
1,508,748 |
|
|
|
4.28 |
|
|
|
1,374,456 |
|
|
|
4.36 |
|
Due after ten years |
|
|
9,559,762 |
|
|
|
2.37 |
|
|
|
9,664,231 |
|
|
|
2.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
$ |
11,070,012 |
|
|
|
2.63 |
% |
|
$ |
11,040,417 |
|
|
|
2.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adverse Case Scenario- OTTI securities
Management evaluates its investments for OTTI on a quarterly basis, by cash flow testing 100
percent of its private-label MBS. In addition, the FHLBNY evaluated its credit-impaired
private-label MBS under a base case (or best estimate) scenario, and also performed a cash flow
analysis for each of those securities under more adverse external assumptions that forecasted a
larger home price decline and a slower rate of housing price recovery. The stress test scenario
and associated results do not represent the Banks current expectations and therefore should not be
construed as a prediction of the Banks future results, market conditions or the actual performance
of these securities.
The results of the adverse case scenario are presented below alongside the FHLBNYs expected
outcome for the credit impaired securities (the base case) (in thousands):
Table 5.7: Base and Adverse Case Stress Scenarios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
|
Actual Results Base Case Scenario |
|
|
Adverse Case Scenario |
|
|
|
|
|
|
|
OTTI Related to Credit |
|
|
|
|
|
|
OTTI Related to Credit |
|
|
|
UPB |
|
|
Loss |
|
|
UPB |
|
|
Loss |
|
RMBS Prime |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime |
|
|
30,869 |
|
|
|
(370 |
) |
|
|
30,869 |
|
|
|
(390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
30,869 |
|
|
$ |
(370 |
) |
|
$ |
30,869 |
|
|
$ |
(390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
|
|
Actual Results Base Case Scenario |
|
|
Adverse Case Scenario |
|
|
|
|
|
|
|
OTTI related to credit |
|
|
|
|
|
|
OTTI related to credit |
|
|
|
UPB |
|
|
loss |
|
|
UPB |
|
|
loss |
|
RMBS Prime |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime |
|
|
67,114 |
|
|
|
3,400 |
|
|
|
67,114 |
|
|
|
5,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
67,114 |
|
|
$ |
3,400 |
|
|
$ |
67,114 |
|
|
$ |
5,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
Actual Results Base Case Scenario |
|
|
Adverse Case Scenario |
|
|
|
|
|
|
|
OTTI related to credit |
|
|
|
|
|
|
OTTI related to credit |
|
|
|
UPB |
|
|
loss |
|
|
UPB |
|
|
loss |
|
RMBS Prime |
|
$ |
16,477 |
|
|
|
(176 |
) |
|
$ |
16,477 |
|
|
$ |
(272 |
) |
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL Subprime |
|
|
17,641 |
|
|
|
(409 |
) |
|
|
17,641 |
|
|
|
(421 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,118 |
|
|
|
(585 |
) |
|
$ |
34,118 |
|
|
$ |
(693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
In the adverse case scenario, expected losses were not significantly greater than those
assessed and recorded under the base case expected loss scenario.
78
Non-Agency Private label mortgage- and asset-backed securities
The Banks investments in privately issued MBS are summarized below. All private-label MBS were
classified as held-to-maturity. (Unpaid principal balance; in thousands):
Table 5.8: Non-Agency Private Label Mortgage- and Asset-Backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Variable |
|
|
|
|
|
|
|
|
|
|
Variable |
|
|
|
|
Private-label MBS |
|
Fixed Rate |
|
|
Rate |
|
|
Total |
|
|
Fixed Rate |
|
|
Rate |
|
|
Total |
|
Private-label RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
246,901 |
|
|
$ |
3,890 |
|
|
$ |
250,791 |
|
|
$ |
284,552 |
|
|
$ |
3,995 |
|
|
$ |
288,547 |
|
Alt-A |
|
|
5,562 |
|
|
|
3,215 |
|
|
|
8,777 |
|
|
|
5,877 |
|
|
|
3,276 |
|
|
|
9,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PL RMBS |
|
|
252,463 |
|
|
|
7,105 |
|
|
|
259,568 |
|
|
|
290,429 |
|
|
|
7,271 |
|
|
|
297,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
379,957 |
|
|
|
77,794 |
|
|
|
457,751 |
|
|
|
389,031 |
|
|
|
81,835 |
|
|
|
470,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Home Equity Loans |
|
|
379,957 |
|
|
|
77,794 |
|
|
|
457,751 |
|
|
|
389,031 |
|
|
|
81,835 |
|
|
|
470,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
171,084 |
|
|
|
|
|
|
|
171,084 |
|
|
|
176,611 |
|
|
|
|
|
|
|
176,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Manufactured Housing Loans |
|
|
171,084 |
|
|
|
|
|
|
|
171,084 |
|
|
|
176,611 |
|
|
|
|
|
|
|
176,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total UPB of private-label MBS |
|
$ |
803,504 |
|
|
$ |
84,899 |
|
|
$ |
888,403 |
|
|
$ |
856,071 |
|
|
$ |
89,106 |
|
|
$ |
945,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid principal balance (UPB) is also known as the current face or par amount of a mortgage-backed security.
The following tables present additional information of the fair values and gross unrealized
losses of PLMBS by year of securitization and external rating (in thousands):
Table 5.9: PLMBS by Year of Securitization and External Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Non-Credit |
|
|
|
Ratings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
Amortized |
|
|
Unrealized |
|
|
|
|
|
|
OTTI |
|
Private-label MBS |
|
Subtotal |
|
|
Triple-A |
|
|
Double-A |
|
|
Single-A |
|
|
Triple-B |
|
|
Grade |
|
|
Cost |
|
|
(Losses) |
|
|
Fair Value |
|
|
Losses1 |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
35,323 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
35,323 |
|
|
$ |
34,798 |
|
|
$ |
(215 |
) |
|
$ |
34,707 |
|
|
$ |
|
|
2005 |
|
|
51,313 |
|
|
|
|
|
|
|
|
|
|
|
14,202 |
|
|
|
|
|
|
|
37,111 |
|
|
|
49,826 |
|
|
|
(555 |
) |
|
|
49,489 |
|
|
|
|
|
2004 and earlier |
|
|
164,155 |
|
|
|
157,633 |
|
|
|
6,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,438 |
|
|
|
(263 |
) |
|
|
166,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
250,791 |
|
|
|
157,633 |
|
|
|
6,522 |
|
|
|
14,202 |
|
|
|
|
|
|
|
72,434 |
|
|
|
248,062 |
|
|
|
(1,033 |
) |
|
|
250,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
8,777 |
|
|
|
8,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,778 |
|
|
|
(531 |
) |
|
|
8,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
259,568 |
|
|
|
166,410 |
|
|
|
6,522 |
|
|
|
14,202 |
|
|
|
|
|
|
|
72,434 |
|
|
|
256,840 |
|
|
|
(1,564 |
) |
|
|
258,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
457,751 |
|
|
|
71,524 |
|
|
|
87,082 |
|
|
|
110,516 |
|
|
|
4,698 |
|
|
|
183,931 |
|
|
|
428,689 |
|
|
|
(55,607 |
) |
|
|
374,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
171,084 |
|
|
|
|
|
|
|
171,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,066 |
|
|
|
(18,998 |
) |
|
|
152,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PLMBS |
|
$ |
888,403 |
|
|
$ |
237,934 |
|
|
$ |
264,688 |
|
|
$ |
124,718 |
|
|
$ |
4,698 |
|
|
$ |
256,365 |
|
|
$ |
856,595 |
|
|
$ |
(76,169 |
) |
|
$ |
784,763 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Credit-related OTTI was offset by reclassification of non-credit OTTI to Net income.
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Non-Credit |
|
|
|
Ratings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
Amortized |
|
|
Unrealized |
|
|
|
|
|
|
OTTI |
|
Private-label MBS |
|
Subtotal |
|
|
Triple-A |
|
|
Double-A |
|
|
Single-A |
|
|
Triple-B |
|
|
Grade |
|
|
Cost |
|
|
(Losses) |
|
|
Fair Value |
|
|
Losses |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
40,987 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
40,987 |
|
|
$ |
40,413 |
|
|
$ |
(303 |
) |
|
$ |
40,313 |
|
|
$ |
(479 |
) |
2005 |
|
|
59,456 |
|
|
|
|
|
|
|
|
|
|
|
17,664 |
|
|
|
|
|
|
|
41,792 |
|
|
|
57,863 |
|
|
|
(589 |
) |
|
|
57,763 |
|
|
|
|
|
2004 and earlier |
|
|
188,104 |
|
|
|
180,110 |
|
|
|
7,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,256 |
|
|
|
(388 |
) |
|
|
191,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
288,547 |
|
|
|
180,110 |
|
|
|
7,994 |
|
|
|
17,664 |
|
|
|
|
|
|
|
82,779 |
|
|
|
285,532 |
|
|
|
(1,280 |
) |
|
|
289,105 |
|
|
|
(479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
9,153 |
|
|
|
9,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,154 |
|
|
|
(528 |
) |
|
|
8,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
297,700 |
|
|
|
189,263 |
|
|
|
7,994 |
|
|
|
17,664 |
|
|
|
|
|
|
|
82,779 |
|
|
|
294,686 |
|
|
|
(1,808 |
) |
|
|
297,789 |
|
|
|
(479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
470,866 |
|
|
|
124,936 |
|
|
|
88,402 |
|
|
|
89,465 |
|
|
|
27,984 |
|
|
|
140,079 |
|
|
|
442,173 |
|
|
|
(64,076 |
) |
|
|
378,992 |
|
|
|
(4,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
176,611 |
|
|
|
|
|
|
|
176,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,592 |
|
|
|
(21,437 |
) |
|
|
155,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total PLMBS |
|
$ |
945,177 |
|
|
$ |
314,199 |
|
|
$ |
273,007 |
|
|
$ |
107,129 |
|
|
$ |
27,984 |
|
|
$ |
222,858 |
|
|
$ |
913,451 |
|
|
$ |
(87,321 |
) |
|
$ |
831,936 |
|
|
$ |
(5,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
Weighted-average market price offers an analysis of unrealized loss percentage; a comparison
of the weighted-average credit support to weighted-average collateral delinquency percentage is
another indicator of the credit support available to absorb potential cash flow shortfalls.
Table 5.10: Weighted-Average Market Price of MBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Original |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
Weighted-Average |
|
|
|
Average Credit |
|
|
Average Credit |
|
|
Collateral |
|
Private-label MBS |
|
Support % |
|
|
Support % |
|
|
Delinquency % |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
3.84 |
% |
|
|
5.32 |
% |
|
|
8.32 |
% |
2005 |
|
|
2.46 |
|
|
|
4.55 |
|
|
|
3.50 |
|
2004 and earlier |
|
|
1.59 |
|
|
|
3.68 |
|
|
|
0.81 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
2.08 |
|
|
|
4.09 |
|
|
|
2.42 |
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
11.23 |
|
|
|
33.59 |
|
|
|
8.20 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
2.39 |
|
|
|
5.09 |
|
|
|
2.61 |
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
57.42 |
|
|
|
32.08 |
|
|
|
17.26 |
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
100.00 |
|
|
|
27.15 |
|
|
|
3.25 |
|
|
|
|
|
|
|
|
|
|
|
Total Private-label MBS |
|
|
49.54 |
% |
|
|
23.25 |
% |
|
|
10.28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Original |
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
Weighted-Average |
|
|
|
Average Credit |
|
|
Average Credit |
|
|
Collateral |
|
Private-label MBS |
|
Support % |
|
|
Support % |
|
|
Delinquency % |
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
3.81 |
% |
|
|
5.30 |
% |
|
|
6.94 |
% |
2005 |
|
|
2.52 |
|
|
|
4.29 |
|
|
|
3.05 |
|
2004 and earlier |
|
|
1.56 |
|
|
|
3.40 |
|
|
|
0.65 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS Prime |
|
|
2.08 |
|
|
|
3.86 |
|
|
|
2.04 |
|
Alt-A |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
11.11 |
|
|
|
33.38 |
|
|
|
7.42 |
|
|
|
|
|
|
|
|
|
|
|
Total RMBS |
|
|
2.36 |
|
|
|
4.76 |
|
|
|
2.20 |
|
|
|
|
|
|
|
|
|
|
|
HEL |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
57.15 |
|
|
|
64.57 |
|
|
|
17.26 |
|
|
|
|
|
|
|
|
|
|
|
Manufactured Housing Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Subprime |
|
|
|
|
|
|
|
|
|
|
|
|
2004 and earlier |
|
|
100.00 |
|
|
|
100.00 |
|
|
|
3.51 |
|
|
|
|
|
|
|
|
|
|
|
Total Private-label MBS |
|
|
47.90 |
% |
|
|
52.36 |
% |
|
|
9.95 |
% |
|
|
|
|
|
|
|
|
|
|
Definitions:
Original Weighted-Average Credit Support percentage represents the arithmetic mean of a cohort
of securities by vintage; credit support is defined as the credit protection level at the time the
mortgage-backed securities closed. Support is expressed as a percentage of the sum of: subordinate
bonds, reserve funds, guarantees, overcollateralization, divided by the original collateral
balance.
Weighted-Average Credit Support percentage represents the arithmetic mean of a cohort of securities
by vintage; credit support is defined as the credit protection level as of the mortgage-backed
securities most current payment date. Support is expressed as a percentage of the sum of:
subordinate bonds, reserve funds, guarantees, overcollateralization, divided by the most current
unpaid collateral balance.
Weighted-average collateral delinquency percentage represents the arithmetic mean of a cohort of
securities by vintage: collateral delinquency is defined as the sum of the unpaid principal balance
of loans underlying the mortgage-backed security
where the borrower is 60 or more days past due, or in bankruptcy proceedings, or the loan is in
foreclosure, or has become real estate owned divided by the aggregate unpaid collateral balance.
81
Short-term investments
The FHLBNY typically maintains substantial investments in high quality, short- and
intermediate-term financial instruments, such as certificates of deposit, as well as overnight and
term Federal funds sold to highly rated financial institutions. These investments provide the
liquidity necessary to meet members credit needs. Short-term investments also provide a flexible
means of implementing the asset/liability management decisions to increase liquidity. The Bank may
also invest in certificates of deposit with maturities not exceeding 270 days and issued by major
financial institutions, and would be recorded at amortized cost basis and designated as
held-to-maturity investment.
Federal funds sold - Historically, the FHLBNY has been a provider of Federal funds to its members,
allowing the FHLBNY to warehouse and provide balance sheet liquidity to meet unexpected member
borrowing demands. For more information, see Tables 5.1 5.10.
Cash collateral pledged Cash deposited by the FHLBNY as pledged collateral to derivative
counterparties is reported as a deduction to Derivative liabilities in the Statements of Condition.
The FHLBNY generally executes derivatives with major financial institutions and typically enters
into bilateral collateral agreements. When the FHLBNYs derivatives are in a net unrealized loss
position, as a liability from the FHLBNYs perspective, counterparties are exposed and the FHLBNY
would be called upon to pledge cash collateral to mitigate the counterparties credit exposure.
Collateral agreements include certain thresholds and pledge requirements that are generally
triggered if exposures exceed the agreed upon thresholds. Typically, such cash deposit pledges
earn interest at the overnight Federal funds rate. For more information, see Tables 9.1 9.5.
Mortgage Loans Held-for-Portfolio
The portfolio of mortgage loans was primarily comprised of investments in Mortgage Partnership
Finance loans (MPF or MPF Program). More details about the MPF program can be found in
Mortgage Partnership Finance Program under the caption Acquired Member Assets Program in the Banks
most recent Form 10-K filed on March 25, 2011.
MPF Program - The FHLBNY does not expect the MPF loans to increase substantially, and the Bank
provides this product to its members as another alternative for them to sell their mortgage
production.
The following table summarizes Mortgage Partnership Finance Loans (MPF or Mortgage Partnership
Finance program) by loss layer structure product types (in thousands):
Table 6.1: MPF by Loss Layers
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Original MPF |
|
$ |
358,201 |
|
|
$ |
343,925 |
|
MPF 100 |
|
|
22,170 |
|
|
|
23,591 |
|
MPF 125 |
|
|
421,467 |
|
|
|
392,780 |
|
MPF 125 Plus |
|
|
462,675 |
|
|
|
494,917 |
|
Other |
|
|
6,491 |
|
|
|
9,408 |
|
|
|
|
|
|
|
|
Total MPF Loans * |
|
$ |
1,271,004 |
|
|
$ |
1,264,621 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Par amount of total mortgage loan held-for-portfolio includes CMA, par amount at March 31, 2011 was $0.3 million. |
Original MPF The first layer of losses is applied to the First Loss Account provided by the
Bank. The member then provides a credit enhancement up to AA rating equivalent. Any credit
losses beyond the first two layers, though a remote possibility, would be absorbed by the FHLBNY.
MPF 100 The first layer of losses is applied to the First Loss Account provided by the Bank.
Losses incurred in the First Loss Account are deducted from credit enhancement fees payable to the
member after the third year. The member then provides a credit enhancement up to AA rating
equivalent less the amount placed in the FLA. The Bank absorbs any losses incurred in the FLA that
are not recovered through credit enhancement fees (should the pool liquidate prior to repayment of
losses). Credit losses beyond the first two layers, though a remote possibility, would be absorbed
by the FHLBNY.
MPF 125 The first layer of losses is applied to the First Loss Account provided by the Bank.
Losses incurred in the First Loss Account are deducted from the credit enhancement fees payable to
the member. The member then provides a credit enhancement up to AA rating equivalent less the
amount placed in the FLA. The Bank absorbs any losses incurred in the FLA that are not recovered
through credit enhancement fees (should the pool liquidate prior to repayment of losses). Credit
losses beyond the first two layers, though a remote possibility would be absorbed by the FHLBNY.
MPF Plus The first layer of losses is applied to the First Loss Account (FLA) in an amount
equal to a specified percentage of loans in the pool as of the sale date. Losses incurred in the
First Loss Account are deducted from the credit enhancement fees payable to the member. The Bank
absorbs any losses incurred in the FLA that are not recovered through credit enhancement fees
(should the pool liquidate prior to repayment of losses) The member acquires an additional Credit
Enhancement (CE) coverage through a supplemental mortgage insurance policy
(SMI) to cover second-layer losses that exceed the deductible (FLA) of the Supplemental
Mortgage Insurance policy. Losses not covered by the First Loss Account or Supplemental Mortgage
Insurance coverage will be paid by the members Credit Enhancement obligation up to AA rating
equivalent. The Bank would absorb losses that exceeded the Credit Enhancement obligation, though
such losses are a remote possibility.
82
Mortgage loans Conventional and Insured Loans.
The following classifies mortgage loans between conventional loans and loans insured by FHA/VA (in
thousands):
Table 6.2: Mortgage Loans Conventional and Insured Loans
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Federal Housing Administration and Veteran Administration insured loans |
|
$ |
6,212 |
|
|
$ |
5,610 |
|
Conventional loans |
|
|
1,264,513 |
|
|
|
1,255,212 |
|
Others |
|
|
279 |
|
|
|
3,799 |
|
|
|
|
|
|
|
|
Total par value |
|
$ |
1,271,004 |
|
|
$ |
1,264,621 |
|
|
|
|
|
|
|
|
Mortgage Loans Credit Enhancement
The amount of the credit enhancement is computed with the use of a Standard & Poors model to
determine the amount of credit enhancement necessary to bring a pool of uninsured loans to AA
credit risk. The credit enhancement becomes an obligation of the Participating Financial
Institution. For taking on the credit enhancement obligation, the Participating Financial
Institution receives a credit enhancement fee that is paid by the FHLBNY. For certain Mortgage
Partnership Finance products, the credit enhancement fee is accrued and paid each month. For other
Mortgage Partnership Finance products, the credit enhancement fee is accrued and paid monthly after
the FHLBNY has accrued 12 months of credit enhancement fees.
The portion of the credit enhancement that is an obligation of the Participating Financial
Institution (PFI) must be fully secured with pledged collateral. A portion of the credit
enhancement may also be covered by insurance, subject to limitations specified in the Acquired
Member Assets regulation. Each member or housing associate that participates in the Mortgage
Partnership Finance program must meet financial performance criteria established by the FHLBNY. In
addition, each approved PFI must have a financial review performed by the FHLBNY on an annual
basis.
The second layer is that amount of credit obligation that the Participating Financial Institution
has taken on, which will equate the loan to a double-A rating. The FHLBNY pays a Credit
Enhancement fee to the Participating Financial Institution for taking on this obligation. The
FHLBNY assumes all residual risk.
Loan concentration was in New York State, which is to be expected since the largest two PFIs are
located in New York.
Table 6.3: Concentration of MPF Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration of MPF Loans |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Number of |
|
|
Amounts |
|
|
Number of |
|
|
Amounts |
|
|
|
loans % |
|
|
outstanding % |
|
|
loans % |
|
|
outstanding % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New York State |
|
|
72.9 |
% |
|
|
66.3 |
% |
|
|
73.3 |
% |
|
|
67.7 |
% |
Deposit Liabilities
Deposit liabilities comprised of member deposits and, from time to time, may also include
unsecured overnight borrowings from other FHLBanks.
Member deposits The FHLBNY operates deposit programs for the benefit of its members. Deposits
are primarily short-term in nature, with the majority maintained in demand accounts that reprice
daily based upon rates prevailing in the overnight Federal funds market. Members liquidity
preferences are the primary determinant of the level of deposits. Deposits at March 31, 2011 stood
at $2.5 billion, slightly above the balances at December 31, 2010. The Bank may accept deposits
from governmental and semi-governmental institutions in addition to member deposit. Fluctuations
in member deposits have little impact on the Bank and are not a significant source of liquidity for
the Bank.
Borrowings from other FHLBanks The Bank borrows from other FHLBanks, generally for a period of
one day and at market terms. There were no significant borrowings in any periods in this report.
83
Debt Financing Activity and Consolidated Obligations
Consolidated obligations, which consist of consolidated bonds and consolidated discount notes,
are the joint and several obligations of the FHLBanks and are the principal funding source for the
FHLBNYs operations. Discount notes are consolidated obligations with maturities of up to 365
days, and consolidated bonds have maturities of one year or longer. Member deposits, capital, and
to a lesser extent borrowings from other FHLBanks, are also funding sources.
Consolidated Obligation Liabilities
The issuance and servicing of consolidated obligations debt are performed by the Office of Finance,
a joint office of the FHLBanks established by the Finance Agency. Each FHLBank independently
determines its participation in each issuance of consolidated obligations based on, among other
factors, its own funding and operating requirements, maturities, interest rates, and other terms
available for consolidated obligations in the market place. Although the FHLBNY is primarily
liable for its portion of consolidated obligations (i.e. those issued on its behalf), the FHLBNY is
also jointly and severally liable with the other FHLBanks for the payment of principal and interest
on the consolidated obligations of all the FHLBanks. The FHLBanks, including the FHLBNY, have
emphasized diversification of funding sources and channels as the need for funding from the capital
markets has grown.
The two major debt programs offered by the Office of Finance are the Global Debt Program and the
TAP issue programs as described below. The FHLBNY participates in both programs.
The Global Debt Program provides the FHLBanks with the ability to distribute debt into multiple
primary markets across the globe. The FHLBank global debt issuance facility has been in place
since July 1994. FHLBank global bonds are known for their variety and flexibility; all can be
customized to meet changing market demand with different structures, terms and currencies. Global
Debt Program bonds are available in maturities ranging from one year to 30 years with the majority
of global issues between one and five years. The most common Global Debt Program structures are
bullets, floaters and fixed-rate callable bonds with maturities of one through ten years. Issue
sizes are typically from $500 million to $5 billion and individual bonds can be reopened to meet
additional demand. Bullets are the most common global bonds, particularly in sizes of $3 billion
or larger.
In mid-1999, the Office of Finance implemented the TAP issue program on behalf of the FHLBanks.
This program consolidates domestic bullet bond issuance through daily auctions of common maturities
by reopening previously issued bonds. Effectively, the program has reduced the number of separate
FHLBanks bullet issues and individual issues have grown as large as $1.0 billion. The increased
issue sizes have a number of market benefits for investors, dealers and the 12 FHLBanks. TAP
issues have improved market awareness, expanded secondary market trading opportunities, improved
liquidity and stimulated greater demand from investors and dealers seeking high-quality Government
Sponsored Enterprises securities with U.S. Treasury-like characteristics. The TAP issues follow
the same 3-month quarterly cycles used for the issuance of on-the-run Treasury securities and
also have semi-annual coupon payment dates (March, June, September and December). The coupons for
new issues are determined by the timing of the first auction during a given quarter.
The FHLBanks also issue global consolidated obligation bonds. Effective in January 2009, a debt
issuance process was implemented by the FHLBanks and the Office of Finance to provide a scheduled
monthly issuance of global bullet consolidated obligation bonds. As part of this process,
management from each of the FHLBanks will determine and communicate a firm commitment to the Office
of Finance for an amount of scheduled global debt to be issued on its behalf. If the FHLBanks
orders do not meet the minimum debt issue size, the proceeds are allocated to all FHLBanks based on
the larger of the FHLBanks commitment or allocated proceeds based on the individual FHLBanks
capital to total system capital. If the FHLBanks commitments exceed the minimum debt issue size,
the proceeds are allocated based on relative capital of the FHLBanks with the allocation limited to
the lesser of the allocation amount or actual commitment amount. The Finance Agency and the U.S.
Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of
Finance. The FHLBanks can, however, pass on any scheduled calendar slot and not issue any global
bullet consolidated obligation bonds upon agreement of eight of the 12 FHLBanks.
The FHLBanks, including the FHLBNY, continue to issue debt that is both competitive and attractive
in the marketplace. In addition, the FHLBanks continuously monitor and evaluate their debt
issuance practices to ensure that consolidated obligations are efficiently and competitively
priced.
Consolidated obligations are issued with either fixed- or variable-rate coupon payment terms that
use a variety of indices for interest rate resets. These indices may include the London Interbank
Offered Rate (LIBOR), Constant Maturity Treasury (CMT), 11th District Cost of Funds Index
(COFI), Prime rate, the Federal funds rate, and others. In addition, to meet the expected
specific needs of certain investors in consolidated obligations, both fixed- and variable-rate
bonds may also contain certain features that will result in complex coupon payment terms and call
options. When the FHLBNY cannot use such complex coupons to hedge its assets, FHLBNY enters into
derivative transactions containing offsetting features that effectively convert the terms of the
bond to those of a simple variable-rate bond.
The consolidated obligations, beyond having fixed- or variable-rate coupon payment terms, may also
be Optional Principal Redemption Bonds (callable bonds) that the FHLBNY may redeem in whole or in
part at its discretion on predetermined call dates according to the terms of the bond offerings.
84
Highlights Debt issuance and funding management
The FHLBNYs consolidated obligations outstanding has contracted, in part due to the contraction of
the Banks advance business and in part due to reduction in overall funding requirements, as the
Bank has also been cautious about increasing its investment portfolios. However, the primary
source of funds for the FHLBNY continued to be through issuance of consolidated bonds and discount
notes.
Financing (utilization of FHLBank issued debt) ratio has remained substantially unchanged over the
years at around 90 percent, indicative of the stable funding strategy pursued by the FHLBNY.
Fixed-rate non-callable debt remains the largest component of consolidated obligation debt. In
early 2011 first quarter, the pricing of FHLBank issued discount notes were not favorable and spreads
to LIBOR were generally in the single digits. In March 2011 pricing improved, and spreads widened
to around 15-18 basis points below LIBOR. Short-term callable bonds with ultra short lock-out
periods (before option exercise) were also popular as they provided a yield pick-up for
investors. With a short-lockout, investor expectation is that the bond will be called at the first
exercise date, and the investor would benefit from a yield pick-up over an equivalent tenor
short-term investment. Term FHLBank bonds were priced at very tight spreads to LIBOR all through
the 2011 first quarter. Longer term bond pricing remains prohibitively expensive as investors are
reluctant to take the risk of locking in long-term investments without a step-up option which
would protect yields when rates eventually rise.
Debt extinguishment The following table summarizes debt transferred to or from another FHLBank
and debt retired by the FHLBNY (in thousands):
Table 7.1: Transferred and Retired Debt
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011* |
|
|
2010* |
|
Debt transferred to another FHLBank |
|
$ |
150,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Debt transferred from another FHLBank |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Debt extinguished |
|
$ |
328,560 |
|
|
$ |
|
|
|
|
|
|
|
|
|
In the 2011 first quarter, debt transfer and retirement resulted in a charge to Net income of
$52.0 million.
Consolidated obligation bonds
The following summarizes types of bonds issued and outstanding (dollars in thousands):
Table 7.2: Consolidated Obligation Bonds by Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
|
Fixed-rate, non-callable |
|
$ |
38,662,070 |
|
|
|
56.93 |
% |
|
$ |
43,307,980 |
|
|
|
61.01 |
% |
Fixed-rate, callable |
|
|
9,260,000 |
|
|
|
13.64 |
|
|
|
8,821,000 |
|
|
|
12.43 |
|
Step Up, non-callable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Step Up, callable |
|
|
3,015,000 |
|
|
|
4.44 |
|
|
|
2,725,000 |
|
|
|
3.84 |
|
Single-index floating rate |
|
|
16,968,000 |
|
|
|
24.99 |
|
|
|
16,128,000 |
|
|
|
22.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total par value |
|
|
67,905,070 |
|
|
|
100.00 |
% |
|
|
70,981,980 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
176,028 |
|
|
|
|
|
|
|
163,830 |
|
|
|
|
|
Bond discounts |
|
|
(30,211 |
) |
|
|
|
|
|
|
(31,740 |
) |
|
|
|
|
Fair value basis
adjustments |
|
|
473,369 |
|
|
|
|
|
|
|
622,593 |
|
|
|
|
|
Fair value basis adjustments on terminated hedges |
|
|
468 |
|
|
|
|
|
|
|
501 |
|
|
|
|
|
Fair value option valuation adjustments and accrued interest |
|
|
5,257 |
|
|
|
|
|
|
|
5,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds |
|
$ |
68,529,981 |
|
|
|
|
|
|
$ |
71,742,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLBNY Tactical changes in the funding mix
The FHLBNY issued fixed- and floating-rate bonds, and discount notes in a mix of issuances to
achieve its asset/liability management goals and to be responsive to the changing market dynamics.
The issuance of bonds has
been the primary financing vehicle for the Bank, although the use of term and overnight discount
notes remains vital sources of funding because of the ease of issuance of discount notes as a
flexible funding tool for day-to-day operations. The 3-month LIBOR index is a vital indicator as
the FHLBNY attempts to execute interest rate swaps to synthetically convert fixed-rate cash flows
to sub-LIBOR cash flows, earning the FHLBNY a spread. In addition, the use of interest rate swaps
effectively changes the repricing characteristics of a significant portion of the FHLBNYs
fixed-rate consolidated obligation debt (and fixed rate medium and long-term advances offered to
members) to match shorter-term LIBOR rates that reprice at intervals of three months or less. When
the Bank executes an interest rate swap to change the fixed payments on its debt to a LIBOR rate,
it results in the recognition of the spread (between the fixed payments and the LIBOR cash
receipts) as the FHLBNYs effective funding cost. Consequently, the current level of spread
between the 3-month LIBOR rate and the swap rate for a fixed-rate FHLBank debt has an impact on the
FHLBNYs profitability. Also, the change in the absolute level of the index tends to impact the
sub-LIBOR spread, which in turn impacts interest margin and profitability.
85
Impact of hedging fixed-rates consolidated obligation bonds
The Bank hedges certain fixed-rate debt by the use of both cancellable and non-cancellable interest
rate swaps in fair value hedges under the accounting standards for derivatives and hedging. The
Bank may also hedge the anticipatory issuance of bonds under the provisions of cash flow hedging
rules as provided in the accounting standards for derivatives and hedging.
Net interest accruals from qualifying interest rate swaps under the derivatives and hedge
accounting rules are recorded together with interest expense of consolidated obligation bonds in
the Statements of Income. Fair value changes of debt in a qualifying fair value hedge are recorded
in Other income (loss) as a Net realized and unrealized gain (loss) on derivative and hedging
activities. An offset is recorded as a fair value basis adjustment to the carrying amount of the
debt in the balance sheet. Net interest accruals associated with derivatives not qualifying under
derivatives and hedge accounting rules are recorded in Other income (loss) as a Net realized and
unrealized gain (loss) on derivatives and hedging activities.
Derivatives are employed to hedge consolidated bonds in the following manner to achieve the
indicated principal objectives:
The FHLBNY:
|
|
Makes extensive use of the derivatives to restructure interest rates on consolidated
obligation bonds, both callable and non-callable, to better meet its members funding needs,
to reduce funding costs, and to manage risk in a changing market environment. |
|
|
Converts, at the time of issuance, certain simple fixed-rate bullet and callable bonds into
synthetic floating-rate bonds by the simultaneous execution of interest rate swaps that
convert the cash flows of the fixed-rate bonds to conventional adjustable rate instruments
tied to an index, typically 3-month LIBOR. |
|
|
Uses derivatives to manage the risk arising from changing market prices and volatility of a
fixed coupon bond by matching the cash flows of the bond to the cash flows of the derivative
and making the FHLBNY indifferent to changes in market conditions. Except when issued to fund
MBS and MPF loans, callable bonds are typically hedged by an offsetting derivative with a
mirror-image call option and identical terms. |
|
|
Adjusts the reported carrying value of hedged consolidated bonds for changes in their fair
value (fair value basis adjustments or fair value) that are attributable to the risk being
hedged in accordance with hedge accounting rules. Amounts reported for consolidated
obligation bonds in the Statements of Condition include fair value basis adjustments. |
|
|
Lowers its funding cost by the issuance of a callable bond and the execution of an
associated interest rate swap with mirrored call options, which results in funding at a lower
cost than the FHLBNY would otherwise have achieved. The issuance of callable bonds and the
simultaneous swapping with a derivative instrument depends on the price relationships in both
the bond and the derivatives markets. |
The most significant element that impacts balance sheet reporting of debt is the recording of fair
value basis and valuation adjustments. In addition, when callable bonds are hedged by cancellable
swaps, the possibility of exercise of the call shortens the expected maturity of the bond. The
impact of hedging debt on recorded interest expense is discussed in this MD&A under Results of
Operations. Its impact as a risk management tool is discussed under ITEM 3. Quantitative And
Qualitative Disclosure About Market Risk.
Fair value basis and valuation adjustments - The Bank uses interest rate derivatives to hedge the
risk of changes in the benchmark rate, which the FHLBNY has adopted as LIBOR, and is also the
discounting basis for computing changes in fair values of hedged bonds. The Bank recorded net
unrealized fair value basis losses which were not significant for all periods in this report
primarily because of the relatively short durations of hedged bonds. Carrying values of bonds
designated under the FVO are also adjusted for valuation adjustments to recognize changes in the
full fair value of the bonds elected under the FVO. Changes in fair value basis reflect changes in
the term structure of interest rates, the shape of the yield curve at the measurement dates, the
value and implied volatility of call options of callable bonds, and from the growth or decline in
hedge volume.
Hedge volume The following table summarizes par amounts of bonds hedged (in thousands):
Table 7.3: Bonds Hedged
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligations Bonds |
|
Par Amount |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Qualifying Hedges 1 |
|
|
|
|
|
|
|
|
Fixed-rate bullet bonds |
|
$ |
26,664,830 |
|
|
$ |
27,610,830 |
|
Fixed-rate callable bonds |
|
|
8,285,000 |
|
|
|
5,905,000 |
|
|
|
|
|
|
|
|
|
|
$ |
34,949,830 |
|
|
$ |
33,515,830 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Under hedge accounting rules |
86
The following table summarizes par amounts of bonds under the FVO (in thousands):
|
|
Table 7.4: Bonds under the Fair Value Option (FVO) |
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligations Bonds |
|
Par Amount |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Bonds designated under FVO |
|
$ |
12,600,000 |
|
|
$ |
14,276,000 |
|
|
|
|
|
|
|
|
The FHLBNY continued to hedge a significant percentage of its fixed-rate non-callable bonds
(also referred to as bullet bonds) under hedge accounting rules. Bonds hedged under the fair value
hedge accounting rule are to mitigate the fair value risk from changes in the benchmark rate, and
effectively converts the fixed-rate exposure of the bonds to a variable-rate exposure, generally
indexed to 3-month LIBOR. The Banks callable bonds contain a call option purchased by the Bank
from the investor. Generally, the call option terms mirror the call option terms embedded in a
cancellable swap. Under the terms of the call option, the Bank has the right to terminate the bond
at agreed upon dates, and the swap counterparty has the right to cancel the swap.
The Bank also hedges certain bonds under the FVO. Under this accounting rule, the carrying values
of debt (designated under the FVO) are adjusted for changes in the full fair values of the debt,
not just for changes in the benchmark rate. Bonds designated under the FVO were economically
hedged by interest rate swaps, as described below.
Economic hedges If at inception of the hedges, the Bank did not believe that the hedges would be
highly effective in offsetting fair value changes between the derivative and the debt (hedged
item), the FHLBNY would account for the derivatives as freestanding (economic hedges). When
derivatives are designated as an economic hedge of a debt, the Bank may designate the debt under
the FVO if operationally practical, and the full fair values of both the derivative and debt would
be marked through P&L. The recorded balance sheet value of debt under the FVO would include the
fair value basis adjustments so that the debts balance sheet carrying values would be its fair
value. In other instances, the Bank may decide that the operational cost of designating debt under
the FVO (or fair value hedge accounting) is not operationally practical and would opt to hedge the
debt on an economic basis to mitigate the economic risks. In this scenario, the balance sheet
carrying value of the debt would not include fair value basis since the debt is recorded at
amortized cost. All derivatives, however, are recorded in the balance sheets at fair value with
changes in fair values recorded through P&L.
The following table summarizes the bonds that were economically hedged (in thousands):
Table 7.5: Economically Hedged Bonds
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligations Bonds |
|
Par Amount |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Bonds designated as economically hedged |
|
|
|
|
|
|
|
|
Floating-rate bonds |
|
$ |
10,053,000 |
|
|
$ |
8,928,000 |
|
Fixed-rate bonds |
|
|
430,000 |
|
|
|
115,000 |
|
|
|
|
|
|
|
|
|
|
$ |
10,483,000 |
|
|
$ |
9,043,000 |
|
|
|
|
|
|
|
|
Floating-rate debt Hedged floating-rate bonds were indexed to interest rates other than
3-month LIBOR by entering into swap agreements with derivative counterparties that synthetically
converted the floating rate debt cash flows to 3-month LIBOR. The hedge objective was to reduce
the basis risk from any asymmetrical changes between 3-month LIBOR and the Prime, Federal funds
rate, or the 1-month LIBOR. Such bonds were hedged by interest-rate swaps with mirror image
terms and the swaps were designated a stand-alone derivatives because the operational cost of
designating the swaps in a hedge qualifying relationship outweighed the benefits.
Fixed-rate debt In a less volatile interest-rate environment at March 31, 2011 and December 31,
2010, the FHLBNY was able to comply with the hedge effectiveness standards under accounting rules,
and fewer fixed-rate bonds were designated as hedged on an economic basis.
Impact of changes in interest rates to the balance sheet carrying values of hedged bonds - The
carrying amounts of consolidated obligation bonds included relative insignificant amounts of fair
value basis losses. Changes in fair value basis from one period to another reflect changes in the
term structure of interest rates, the shape of the yield curve at the two measurement dates, and
the value and implied volatility of call options of callable bonds.
Most of the hedged bonds had been issued in prior years at the then prevailing higher interest-rate
environment. Since such bonds were typically fixed-rate, in a declining interest rate environment
fixed-rate bonds exhibited unrealized fair value basis losses, which were recorded as part of the
balance sheet carrying values of the hedged debt. In the Statements of Income, such unrealized
losses from fair value basis adjustments on hedged bonds were almost entirely offset by net fair
value unrealized gains from derivatives associated with the hedged bonds, thereby achieving the
Banks hedging objectives of mitigating fair value basis risk.
Fair value losses were not significant because the hedged bonds were short- and medium-term on
average, and their contractual coupons were not so different than the market interest rates at the
balance sheet dates. For the same reason, the period-over-period net fair value basis losses of
hedged bonds remained almost unchanged because the FHLBNY has continued to replace maturing and
called short-term and medium-term hedged bonds with equivalent term bonds.
87
Consolidated obligation bonds maturity or next call date
Swapped, callable bonds contain an exercise date or a series of exercise dates that may result in a
shorter redemption period. Thus, issuance of a callable bond with an associated callable swap
significantly alters the contractual maturity characteristics of the original bond and introduces
the possibility of an exercise call date that is significantly shorter than the contractual
maturity. The following table summarizes consolidated bonds outstanding by years to maturity or
next call date (dollars in thousands):
Table 7.6: Consolidated Obligation Bonds Maturity or Next Call Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Amount |
|
|
of Total |
|
|
Amount |
|
|
of Total |
|
Year of Maturity or next call date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due or callable in one year or less |
|
$ |
42,902,200 |
|
|
|
63.18 |
% |
|
$ |
40,228,200 |
|
|
|
56.67 |
% |
Due or callable after one year through two years |
|
|
9,578,225 |
|
|
|
14.10 |
|
|
|
15,671,375 |
|
|
|
22.08 |
|
Due or callable after two years through three years |
|
|
7,577,250 |
|
|
|
11.16 |
|
|
|
7,209,950 |
|
|
|
10.16 |
|
Due or callable after three years through four years |
|
|
2,700,080 |
|
|
|
3.98 |
|
|
|
2,649,355 |
|
|
|
3.73 |
|
Due or callable after four years through five years |
|
|
2,717,300 |
|
|
|
4.00 |
|
|
|
2,926,400 |
|
|
|
4.12 |
|
Due or callable after five years through six years |
|
|
238,700 |
|
|
|
0.35 |
|
|
|
227,500 |
|
|
|
0.32 |
|
Thereafter |
|
|
2,191,315 |
|
|
|
3.23 |
|
|
|
2,069,200 |
|
|
|
2.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,905,070 |
|
|
|
100.00 |
% |
|
|
70,981,980 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond premiums |
|
|
176,028 |
|
|
|
|
|
|
|
163,830 |
|
|
|
|
|
Bond discounts |
|
|
(30,211 |
) |
|
|
|
|
|
|
(31,740 |
) |
|
|
|
|
Fair value basis adjustments |
|
|
473,369 |
|
|
|
|
|
|
|
622,593 |
|
|
|
|
|
Fair value basis adjustments on terminated hedges |
|
|
468 |
|
|
|
|
|
|
|
501 |
|
|
|
|
|
Fair value option valuation adjustments and accrued interest |
|
|
5,257 |
|
|
|
|
|
|
|
5,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68,529,981 |
|
|
|
|
|
|
$ |
71,742,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contrasting consolidated obligation bonds by contractual maturity dates with potential put
dates illustrates the impact of hedging on the effective duration of the Banks advances. A
significant amount of the Banks debt has been issued to investors that are callable the Bank has
purchased from investors the option to terminate debt at agreed upon dates. Call options are owned
and exercisable by the Bank and are generally either a one-time option or quarterly. The Banks
current practice is to exercise its option to call a bond when the swap counterparty exercises its
option to call the callable swap hedging the callable bond.
The volume of callable bonds outstanding in a declining interest rate environment will shorten the
expected maturities of hedged bonds. The following table summarizes callable bonds outstanding
(in thousands):
Table 7.7: Outstanding Callable Bonds
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011* |
|
|
December 31, 2010* |
|
Callable |
|
$ |
12,275,000 |
|
|
$ |
11,546,000 |
|
|
|
|
|
|
|
|
No longer callable |
|
$ |
1,015,000 |
|
|
$ |
1,015,000 |
|
|
|
|
|
|
|
|
Non-Callable |
|
$ |
54,615,070 |
|
|
$ |
58,420,980 |
|
|
|
|
|
|
|
|
Typically, almost all callable debt is hedged by cancellable interest rate swaps in which the
derivative counterparty has the right to exercise and terminate the swap at par at agreed upon
dates.
Discount Notes
Consolidated obligation discount notes provide the FHLBNY with short-term and overnight funds.
Discount notes have maturities of up to one year and are offered daily through a dealer-selling
group; the notes are sold at a discount from their face amount and mature at par. Through a
sixteen-member selling group, the Office of Finance, acting on behalf of the twelve Federal Home
Loan Banks, offers discount notes. In addition, the Office of Finance offers discount notes in
four standard maturities in two auctions each week.
The FHLBNY typically uses discount notes to fund short-term advances, longer-term advances with
short repricing intervals, putable advances and money market investments.
88
The following summarizes discount notes issued and outstanding (dollars in thousands):
Table 7.8: Discount Notes Outstanding
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Par value |
|
$ |
19,509,575 |
|
|
$ |
19,394,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
$ |
19,504,022 |
|
|
$ |
19,388,317 |
|
Fair value option
valuation
adjustments |
|
|
3,137 |
|
|
|
3,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
19,507,159 |
|
|
$ |
19,391,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate |
|
|
0.11 |
% |
|
|
0.16 |
% |
|
|
|
|
|
|
|
Discount notes remained a popular funding vehicle for the FHLBNY. The efficiency of issuing
discount notes is an important element in its use to alter funding tactics relatively rapidly, as
discount notes can be issued any time and in a variety of amounts and maturities in contrast to
other short-term funding sources, such as the issuance of callable debt with an associated interest
rate derivative with matching terms.
Discount notes The following table summarizes hedges of discount notes (in thousands):
Table 7.9: Hedges of Discount Notes
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligations Discount Notes |
|
Principal Amount |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Discount notes hedged under qualifying hedge |
|
$ |
150,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Discount notes under FVO |
|
$ |
728,755 |
|
|
$ |
953,202 |
|
|
|
|
|
|
|
|
In the first quarter of 2011, the Bank entered into an interest rate swap agreement with an
unrelated swap dealer and designated it as a hedge of the variable quarterly interest payments on a
9-year discount note borrowing program expected to be accomplished by a series of issuances of
$150.0 million discount notes with 91-day terms. The FHLBNY will continue issuing new 91-day
discount notes over the next 9 years as each outstanding discount note matures. The fair value
recorded as part of the carrying value of the hedged discount note was an unrealized gain of $1.9
million with an offset to AOCI.
The Bank had also hedged discount notes in economic hedges under the FVO accounting rules to
convert the fixed-rate exposure of the discount notes to a variable-rate exposure, generally
indexed to LIBOR. The discount notes were economically hedged by interest rate swaps to mitigate
fair value risk due to changes in their fair values.
Rating Actions With Respect to the FHLBNY are outlined below:
On April 19, 2011 Standard & Poors Ratings Services today affirmed the AAA rating of the FHLBank
but revised its outlooks on the debt issues of the Federal Home Loan Bank System to negative from
stable. Concurrently, S&P revised its outlook to negative from stable for the Federal Home Loan
Banks in Atlanta, Boston, Cincinnati, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, San
Francisco, and Topeka while affirming their AAA issuer credit ratings. These rating actions
reflect S&Ps revision on April 18, 2011 of the outlook on the long-term sovereign credit rating on
the United States of America to negative from stable (AAA/Negative/A-1+).
Table 7.10: FHLBNY Ratings
Short-Term Ratings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys Investors Service |
|
S & P |
Year |
|
Outlook |
|
Rating |
|
Short-Term Outlook |
|
Rating |
2010 |
|
June 17, 2010 Affirmed |
|
P-1 |
|
July 21, 2010 |
|
Short-Term rating affirmed |
|
|
|
A-1+ |
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
June 19, 2009 Affirmed |
|
P-1 |
|
July 13, 2009 |
|
Short-Term rating affirmed |
|
|
|
A-1+ |
|
|
February 2, 2009 Affirmed |
|
P-1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
October 29, 2008 Affirmed |
|
P-1 |
|
June 16, 2008 |
|
Short-Term rating affirmed |
|
|
|
A-1+ |
|
|
April 17, 2008 Affirmed |
|
P-1 |
|
|
|
|
|
|
|
|
|
Long-Term Ratings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys Investors Service |
|
S & P |
Year |
|
Outlook |
|
Rating |
|
Long-Term Outlook |
|
Rating |
2010 |
|
June 17, 2010 Affirmed |
|
Aaa/Stable |
|
July 21, 2010 |
|
Long-Term rating affirmed |
|
outlook stable |
|
AAA/Stable |
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
June 19, 2009 Affirmed |
|
Aaa/Stable |
|
July 13, 2009 |
|
Long-Term rating affirmed |
|
outlook stable |
|
AAA/Stable |
|
|
February 2, 2009 Affirmed |
|
Aaa/Stable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
October 29, 2008 Affirmed |
|
Aaa/Stable |
|
June 16, 2008 |
|
Long-Term rating affirmed |
|
outlook stable |
|
AAA/Stable |
|
|
April 17, 2008 Affirmed |
|
Aaa/Stable |
|
|
|
|
|
|
|
|
89
Stockholders Capital, Retained Earnings, and AOCI
The following table summarizes the components of Stockholders capital (in thousands):
Table 8.1: Stockholders Capital
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Capital Stock |
|
$ |
4,323,664 |
|
|
$ |
4,528,962 |
|
Retained Earnings |
|
|
716,650 |
|
|
|
712,091 |
|
Accumulated Other Comprehensive Income (Loss) |
|
|
(97,287 |
) |
|
|
(96,684 |
) |
|
|
|
|
|
|
|
Total Capital |
|
$ |
4,943,027 |
|
|
$ |
5,144,369 |
|
|
|
|
|
|
|
|
Stockholders Capital The decrease in capital stock was consistent with decreases in
advances borrowed by members. Since members are required to purchase stock as a percentage of
advances borrowed from the FHLBNY, a decline in advances will typically result in a decline in
capital stock. In addition, under our present practice, stock in excess of the amount necessary to
support advance activity is redeemed daily by the FHLBNY. Therefore, the amount of capital stock
outstanding varies directly with members outstanding borrowings under existing regulations and
Bank practices.
Retained earnings Retained earnings grew marginally as the FHLBNY paid its member/stockholders a
significant dividend payout. Net income in the 2011 first quarter was $71.0 million; dividends paid
in the period were $66.4 million.
Restricted retained earnings On February 28, 2011, the FHLBNY entered into a Joint Capital
Enhancement Agreement (the Agreement) with the other eleven FHLBanks to allocate 20 percent of its
Net income (after setting aside funds for the Affordable Housing Program) to restricted retained
earnings. The Agreement essentially requires each FHLBank to allocate approximately the same amount
from Net income as was historically paid to REFCORP. The FHLBanks REFCORP obligations are expected
to be fully satisfied in 2011. Currently, an FHLBank is required to contribute 20 percent of its
Net income towards payment of interest on REFCORP bonds (after setting aside AHP assessments).
Under the Agreement, each FHLBank will continue to allocate from Net income to restricted retained
earnings up to a minimum of one percent of consolidated obligations for which the FHLBank is the
primary obligor.
The Agreement includes provisions that would (1) allow the use of restricted retained earnings if
an FHLBank incurs a quarterly or annual net loss, (2) allow the release of restricted retained
earnings in the event of a decline in amount of consolidated obligations with certain restrictions,
and (3) disallow the payments of dividends from restricted retained earnings. The Agreement can be
voluntarily terminated by an affirmative vote of two-thirds of the Boards of Directors of the
FHLBanks; or automatically, if a change in the Act, Finance Agency regulations, or other applicable
law creates an alternate form of taxation or mandatory level of retained earnings.
The Agreement further requires each FHLBank to submit an application to the Finance Agency for
approval to amend its capital plan or capital plan submission, as applicable, consistent with the
terms of the Agreement. Under the Agreement, if the FHLBanks REFCORP obligation terminates before
the Finance Agency has approved all proposed capital plan amendments submitted pursuant to the
Agreement, each FHLBank will nevertheless be required to commence the required allocation to its
separate restricted retained earnings account beginning as of the end of the calendar quarter in
which the final payments are made by the FHLBanks with respect to their REFCORP obligations.
Depending on the earnings of the FHLBanks, the REFCORP obligations could be satisfied as of the end
of the second quarter of 2011. As of the date of this report, the Bank is considering amending its capital plan to incorporate the terms of the Agreement, which, if approved by the Finance Agency, would
result in conforming amendments to the
Agreement, including, among other things, possible revisions to the termination provisions and related provisions affecting
restrictions on the separate restricted retained earnings account.
90
The following table summarizes the components of AOCI (in thousands):
|
|
Table 8.2: Accumulated other comprehensive income (loss) (AOCI) |
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Non-credit portion of OTTI on held-to-maturity
securities, net of accretion |
|
$ |
(89,271 |
) |
|
$ |
(106,612 |
) |
Net unrealized gains on
available-for-sale securities |
|
|
14,979 |
|
|
|
11,521 |
|
Net unrealized losses on hedging activities |
|
|
(11,468 |
) |
|
|
(20,551 |
) |
Employee supplemental retirement plans |
|
|
(11,527 |
) |
|
|
(7,877 |
) |
|
|
|
|
|
|
|
Total Accumulated other comprehensive income (loss) |
|
$ |
(97,287 |
) |
|
$ |
(123,519 |
) |
|
|
|
|
|
|
|
Losses in AOCI primarily represent non-credit portion of OTTI. No new non-credit OTTI losses
on private-label securities were identified in the 2011 first quarter. At March 31, 2011,
additional OTTI losses recorded on previously impaired securities did not result in additional
non-credit OTTI because the market pricing of the credit impaired private-label securities were
greater than the carrying values of the OTTI securities. The net decline in the non-credit
component of OTTI was due to accretion recorded as a reduction in AOCI losses and a corresponding
addition to the balance sheet carrying values of the OTTI securities.
Cash flow hedging losses recorded in AOCI will be reclassified in future years as an expense over
the terms of the hedged bonds as a yield adjustment to the fixed coupons of the debt. The loss in
AOCI will continue to decline unless additional losses from cash flow hedges are recognized in
AOCI. Minimum additional actuarially determined pension liabilities were recognized for the Banks
supplemental pension plans.
91
Derivative Instruments and Hedging Activities
Interest rate swaps, swaptions, and cap and floor agreements (collectively, derivatives) enable the
FHLBNY to manage its exposure to changes in interest rates by adjusting the effective maturity,
repricing frequency, or option characteristics of financial instruments. The FHLBNY, to a limited
extent, also uses interest rate swaps to hedge changes in interest rates prior to debt issuance and
essentially lock in the FHLBNYs funding cost.
Finance Agency regulations prohibit the speculative use of derivatives. The FHLBNY does not take
speculative positions with derivatives or any other financial instruments, or trade derivatives for
short-term profits. The FHLBNY does not have any special purpose entities or any other types of
off-balance sheet conduits.
The notional amounts of derivatives are not recorded as assets or liabilities in the Statements of
Condition. Rather the fair values of all derivatives are recorded as either a derivative asset or a
derivative liability. Although notional principal is a commonly used measure of volume in the
derivatives market, it is not a meaningful measure of market or credit risk since the notional
amount does not change hands (other than in the case of currency swaps, of which the FHLBNY has
none).
All derivatives are recorded on the Statements of Condition at their estimated fair values and
designated as either fair value or cash flow hedges for qualifying hedges, or as non-qualifying
hedges (economic hedges or customer intermediations) under the accounting standards for derivatives
and hedging. In an economic hedge, the Bank retains or executes derivative contracts, which are
economically effective in reducing risk. Such derivatives are designated as economic hedges either
because a qualifying hedge is not available, the difficulty of demonstrating that the hedge would
be effective on an ongoing basis as a qualifying hedge, or the cost of a qualifying hedge is not
economical. Changes in the fair value of a derivative are recorded in current period earnings for a
fair value hedge, or in AOCI for the effective portion of fair value changes of a cash flow hedge.
Interest income and interest expense from interest rate swaps used for hedging are reported
together with interest on the instrument being hedged if the swap qualifies for hedge accounting.
If the swap is designated as an economic hedge, interest accruals are recorded in Other income
(loss) as a Net realized and unrealized gain (loss) on derivatives and hedging activities.
The FHLBNY uses derivatives in three ways: (1) as a fair value or cash flow hedge of an underlying
financial instrument or as a cash flow hedge of a forecasted transaction; (2) as intermediation
hedges to offset derivative positions (e.g., caps) sold to members; and (3) as an economic hedge,
defined as a non-qualifying hedge of an asset or liability and used as an asset/liability
management tool.
The FHLBNY uses derivatives to adjust the interest rate sensitivity of consolidated obligations to
more closely approximate the sensitivity of assets or to adjust the interest rate sensitivity of
advances to more closely approximate the sensitivity of liabilities. In addition, the FHLBNY uses
derivatives to (1) offset embedded options in assets and liabilities; (2) hedge the market value of
existing assets, liabilities and anticipated transactions; and (3) reduce funding costs. For
additional information, see Note 15 Derivatives and Hedging Activities.
92
The
following tables provide information about the principal derivative hedging strategies:
Table 9.1: Derivative Hedging Strategies Advances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Notional Amount |
|
|
Notional Amount |
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
(in millions) |
|
|
(in millions) |
|
Pay fixed, receive floating |
|
To convert fixed rate on a fixed rate |
|
Economic Hedge of Fair Value Risk |
|
$ |
86 |
|
|
$ |
128 |
|
interest rate swap |
|
advance to a LIBOR floating rate |
|
|
|
|
|
|
|
|
|
|
Pay fixed, receive floating interest rate swap cancelable by FHLBNY |
|
To convert fixed rate on a fixed
rate advance to a LIBOR floating rate callable advance |
|
Fair Value Hedge |
|
$ |
305 |
|
|
$ |
150 |
|
Pay fixed, receive floating interest rate swap cancelable by counterparty |
|
To convert fixed rate on a fixed
rate advance to a LIBOR floating rate putable advance |
|
Fair Value Hedge |
|
$ |
26,877 |
|
|
$ |
33,612 |
|
Pay fixed, receive floating interest rate swap no longer cancelable by counterparty |
|
To convert fixed rate on a fixed
rate advance to a LIBOR floating rate no-longer putable advance |
|
Fair Value Hedge |
|
$ |
2,539 |
|
|
$ |
2,839 |
|
Pay fixed, receive floating interest rate swap non-cancelable |
|
To convert fixed rate on a fixed
rate advance to a LIBOR floating rate non-putable advance |
|
Fair Value Hedge |
|
$ |
27,051 |
|
|
$ |
23,724 |
|
Purchased interest rate cap |
|
To offset the cap embedded in the variable rate advance |
|
Economic Hedge of Fair Value Risk |
|
$ |
8 |
|
|
$ |
8 |
|
|
|
|
|
|
Table
9.2: Derivative Hedging Strategies Consolidated Obligation
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Notional Amount |
|
|
Notional Amount |
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
(in millions) |
|
|
(in millions) |
|
Receive fixed, pay floating interest rate swap |
|
To convert fixed rate consolidated obligation bond debt to a LIBOR floating rate |
|
Economic Hedge of Fair Value Risk |
|
$ |
430 |
|
|
$ |
115 |
|
Receive fixed, pay floating interest rate swap cancelable by counterparty |
|
To convert fixed rate consolidated
obligation bond debt to a LIBOR floating rate callable bond |
|
Fair Value Hedge |
|
$ |
8,285 |
|
|
$ |
5,905 |
|
Receive fixed, pay floating interest rate swap no longer cancelable |
|
To convert fixed rate consolidated
obligation bond debt to a LIBOR floating rate no-longer callable |
|
Fair Value Hedge |
|
$ |
15 |
|
|
$ |
15 |
|
Receive fixed, pay floating interest rate swap non-cancelable |
|
To convert fixed rate consolidated
obligation bond debt to a LIBOR floating rate non-callable |
|
Fair Value Hedge |
|
$ |
26,650 |
|
|
$ |
27,596 |
|
Pay fixed, receive LIBOR interest rate swap |
|
To offset the variability of cash
flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation bond debt. |
|
Cash flow hedge |
|
$ |
55 |
|
|
$ |
|
|
Pay fixed, receive LIBOR interest rate swap |
|
To offset the variability of cash
flows associated with interest payments on forecasted issuance of fixed rate consolidated obligation discount note debt. |
|
Cash flow hedge |
|
$ |
150 |
|
|
$ |
|
|
Basis swap |
|
To convert non-LIBOR index to LIBOR to reduce interest rate sensitivity and repricing gaps |
|
Economic Hedge of Cash Flows |
|
$ |
8,003 |
|
|
$ |
6,878 |
|
Basis swap |
|
To convert 1M LIBOR index to 3M
LIBOR to reduce interest rate sensitivity and repricing gaps |
|
Economic Hedge of Cash Flows |
|
$ |
2,050 |
|
|
$ |
2,050 |
|
Receive fixed, pay floating interest rate swap cancelable by counterparty |
|
Fixed rate callable bond converted
to a LIBOR floating rate; matched to callable bond accounted for under fair value option |
|
Fair Value Option |
|
$ |
6,700 |
|
|
$ |
5,576 |
|
Receive fixed, pay floating interest rate swap no longer cancelable |
|
Fixed rate callable bond converted
to a LIBOR floating rate; matched to bond no -longer callable accounted for under fair value option. |
|
Fair Value Option |
|
$ |
1,000 |
|
|
$ |
1,000 |
|
Receive fixed, pay floating interest rate swap non-cancelable |
|
Fixed rate non-callable bond
converted to a LIBOR floating rate; matched to non-callable bond accounted for under fair value option |
|
Fair Value Option |
|
$ |
4,900 |
|
|
$ |
7,700 |
|
Receive fixed, pay floating interest rate swap non-cancelable |
|
Fixed rate consolidated obligation
discount note converted to a LIBOR floating rate; matched to discount
note accounted for under fair value option |
|
Fair Value Option |
|
$ |
729 |
|
|
$ |
953 |
|
|
|
|
|
|
Table
9.3: Derivative Hedging Strategies Balance Sheet and
Intermediation |
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Notional Amount |
|
|
Notional Amount |
|
Derivatives/Terms |
|
Hedging Strategy |
|
Accounting Designation |
|
(in millions) |
|
|
(in millions) |
|
Purchased interest rate cap |
|
Economic hedge on the Balance Sheet |
|
Economic Hedge |
|
$ |
1,892 |
|
|
$ |
1,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermediary positions interest rate swaps and caps |
|
To offset interest rate swaps and
caps executed with members by executing offsetting derivatives with counterparties |
|
Economic Hedge of Fair Value Risk |
|
$ |
550 |
|
|
$ |
550 |
|
The accounting designation economic hedges represented derivative transactions under hedge
strategies that do not qualify for hedge accounting but are an approved risk management hedge.
93
Derivative Financial Instruments by Product
The following table summarizes the notional amounts and estimated fair values of derivative
financial instruments (excluding accrued interest) by product and type of accounting treatment. The
categories of Fair value, Commitment, and Cash flow hedges represented derivative
transactions accounted for as hedges. The category of Economic hedges represented derivative
transactions under hedge strategies that did not qualify for hedge accounting treatment but were an
approved risk management strategy. The table also provides a reconciliation of fair value basis
gains and (losses) of derivatives to the Statements of Condition (in thousands):
Table 9.4: Derivative Financial Instruments by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Total Estimated |
|
|
|
|
|
|
Total Estimated |
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
|
(Excluding |
|
|
|
|
|
|
(Excluding |
|
|
|
Total Notional |
|
|
Accrued |
|
|
Total Notional |
|
|
Accrued |
|
|
|
Amount |
|
|
Interest) |
|
|
Amount |
|
|
Interest) |
|
Derivatives designated as hedging instruments1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances-fair value hedges |
|
$ |
56,772,474 |
|
|
$ |
(3,180,464 |
) |
|
$ |
60,324,983 |
|
|
$ |
(4,269,037 |
) |
Consolidated obligations-fair value hedges |
|
|
34,949,830 |
|
|
|
465,504 |
|
|
|
33,515,830 |
|
|
|
614,739 |
|
Cash Flow-anticipated transactions |
|
|
205,000 |
|
|
|
2,357 |
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances hedges |
|
|
93,775 |
|
|
|
(2,432 |
) |
|
|
136,345 |
|
|
|
(3,115 |
) |
Consolidated obligations hedges |
|
|
10,483,000 |
|
|
|
1,999 |
|
|
|
9,043,000 |
|
|
|
1,675 |
|
Mortgage delivery commitments |
|
|
25,197 |
|
|
|
44 |
|
|
|
29,993 |
|
|
|
(514 |
) |
Balance sheet |
|
|
1,892,000 |
|
|
|
38,196 |
|
|
|
1,892,000 |
|
|
|
41,785 |
|
Intermediary positions hedges |
|
|
550,000 |
|
|
|
614 |
|
|
|
550,000 |
|
|
|
659 |
|
Derivatives matching COs designated under FVO3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps-consolidated obligations-bonds |
|
|
12,600,000 |
|
|
|
(3,099 |
) |
|
|
14,276,000 |
|
|
|
(505 |
) |
Interest rate swaps-consolidated obligations-discount notes |
|
|
728,755 |
|
|
|
421 |
|
|
|
953,202 |
|
|
|
1,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notional and fair value |
|
$ |
118,300,031 |
|
|
$ |
(2,676,860 |
) |
|
$ |
120,721,353 |
|
|
$ |
(3,613,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, excluding accrued interest |
|
|
|
|
|
$ |
(2,676,860 |
) |
|
|
|
|
|
$ |
(3,613,031 |
) |
Cash collateral pledged to counterparties |
|
|
|
|
|
|
1,944,065 |
|
|
|
|
|
|
|
2,739,402 |
|
Cash collateral received from counterparties |
|
|
|
|
|
|
(71,100 |
) |
|
|
|
|
|
|
(9,300 |
) |
Accrued interest |
|
|
|
|
|
|
(10,851 |
) |
|
|
|
|
|
|
(49,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(814,746 |
) |
|
|
|
|
|
$ |
(932,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative asset balance |
|
|
|
|
|
$ |
24,964 |
|
|
|
|
|
|
$ |
22,010 |
|
Net derivative liability balance |
|
|
|
|
|
|
(839,710 |
) |
|
|
|
|
|
|
(954,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net derivative balance |
|
|
|
|
|
$ |
(814,746 |
) |
|
|
|
|
|
$ |
(932,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Qualifying under hedge accounting rules. |
|
2 |
|
Not qualifying under hedge accounting rules but used as an economic hedge
(standalone). |
|
3 |
|
Economic hedge of debt designated under the FVO. |
Derivative Credit Risk Exposure
In addition to market risk, the FHLBNY is subject to credit risk in derivative transactions because
of the potential for non-performance by the counterparties, which could result in the FHLBNY having
to acquire a replacement derivative from a different counterparty at a cost. The FHLBNY also is
subject to operational risks in the execution and servicing of derivative transactions.
The degree of counterparty credit risk may depend, among other factors, on the extent to which
netting procedures and/or the provision of collateral are used to mitigate the risk. See Table 9.5
below for summarized information.
Risk measurement Although notional amount is a commonly used measure of volume in the derivatives
market, it is not a meaningful measure of market or credit risk since derivative counterparties do
not exchange the notional amount (except in the case of foreign currency swaps, of which the FHLBNY
has none). Counterparties use the notional amounts of derivative instruments to calculate
contractual cash flows to be exchanged. The fair value of a derivative in a gain position is a more
meaningful measure of the FHLBNYs current market exposure on derivatives. The FHLBNY estimates
exposure to credit loss on derivative instruments by calculating the replacement cost, on a present
value basis, to settle at current market prices all outstanding derivative contracts in a gain
position, net of collateral pledged by the counterparty to mitigate the FHLBNYs exposure. All
derivative contracts with non-members are also subject to master netting agreements or other right
of offset arrangements.
Exposure In determining credit risk, the FHLBNY considers accrued interest receivable and
payable, and the legal right to offset assets and liabilities by counterparty. The FHLBNY attempts
to mitigate its exposure by requiring derivative counterparties to pledge cash collateral if the
amount of exposure is above the collateral threshold agreements. The FHLBNY is also required to
post cash as collateral to derivative counterparties to mitigate the risk faced by derivatives that
are in a net fair value liability (unfavorable) position. The FHLBNY is exposed to the extent that
a counterparty may not pay the posted cash collateral to the FHLBNY under unforeseen circumstances,
such as bankruptcy; in such an event the FHLBNY would then exercise its rights under the
International Swaps and Derivatives Association agreement (ISDA). To the extent the FHLBNY may
not receive cash equal to the amount posted, the FHLBNY could face losses.
94
Derivative counterparty ratings The Banks credit exposures (derivatives in a net gain position)
were to counterparties rated Single A or better and to member institutions on whose behalf the
FHLBNY had acted as an intermediary or had sold interest rate caps at the request of members to
create capped floating rate advance borrowings. The exposures were collateralized under standard
collateral agreements with the FHLBNYs member. Acting as an intermediary, the Bank had also
purchased equivalent notional amounts of derivatives from unrelated derivative counterparties. See
Table 9.5: Derivatives Counterparty Notional Balance by Credit Ratings.
Risk mitigation The FHLBNY attempts to mitigate derivative counterparty credit risk by
contracting only with experienced counterparties with investment-grade credit ratings. Annually,
the FHLBNYs management and Board of Directors review and approve all non-member derivative
counterparties. Management monitors counterparties on an ongoing basis for significant business
events, including ratings actions taken by nationally recognized statistical rating organizations.
All approved derivatives counterparties must enter into a master ISDA agreement with the FHLBNY
and, in addition, execute the Credit Support Annex to the ISDA agreement that provides for
collateral support at predetermined thresholds. These annexes contain enforceable provisions for
requiring collateral on certain derivative contracts that are in gain positions. The annexes also
define the maximum net unsecured credit exposure amounts that may exist before collateral delivery
is required. Typically, the maximum amount is based upon an analysis of individual counterpartys
rating and exposure. The FHLBNY also attempts to manage counterparty credit risk through credit
analysis, collateral management and other credit enhancements, such as guarantees, and by following
the requirements set forth in the Finance Agencys regulations.
Derivatives Counterparty Credit Ratings
The following table summarizes the FHLBNYs credit exposure by counterparty credit rating (in
thousands, except number of counterparties).
Table 9.5: Derivatives Counterparty Notional Balance by Credit Ratings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Total Net |
|
|
Credit Exposure |
|
|
Other |
|
|
Net |
|
|
|
Number of |
|
|
Notional |
|
|
Exposure at |
|
|
Net of |
|
|
Collateral |
|
|
Credit |
|
Credit Rating |
|
Counterparties |
|
|
Balance |
|
|
Fair Value |
|
|
Cash Collateral3 |
|
|
Held2 |
|
|
Exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
AA |
|
|
8 |
|
|
|
45,423,489 |
|
|
|
20,319 |
|
|
|
14,619 |
|
|
|
|
|
|
|
14,619 |
|
A |
|
|
9 |
|
|
|
72,576,345 |
|
|
|
71,507 |
|
|
|
6,107 |
|
|
|
|
|
|
|
6,107 |
|
Members (Notes 1 & 2) |
|
|
2 |
|
|
|
275,000 |
|
|
|
4,194 |
|
|
|
4,194 |
|
|
|
4,194 |
|
|
|
|
|
Delivery Commitments |
|
|
|
|
|
|
25,197 |
|
|
|
44 |
|
|
|
44 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
19 |
|
|
$ |
118,300,031 |
|
|
$ |
96,064 |
|
|
$ |
24,964 |
|
|
$ |
4,238 |
|
|
$ |
20,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Total Net |
|
|
Credit Exposure |
|
|
Other |
|
|
Net |
|
|
|
Number of |
|
|
Notional |
|
|
Exposure at |
|
|
Net of |
|
|
Collateral |
|
|
Credit |
|
Credit Rating |
|
Counterparties |
|
|
Balance |
|
|
Fair Value |
|
|
Cash Collateral3 |
|
|
Held2 |
|
|
Exposure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
AA |
|
|
8 |
|
|
|
43,283,429 |
|
|
|
25,385 |
|
|
|
16,085 |
|
|
|
|
|
|
|
16,085 |
|
A |
|
|
8 |
|
|
|
77,132,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members (Notes 1 & 2) |
|
|
2 |
|
|
|
275,000 |
|
|
|
5,925 |
|
|
|
5,925 |
|
|
|
5,925 |
|
|
|
|
|
Delivery Commitments |
|
|
|
|
|
|
29,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18 |
|
|
$ |
120,721,353 |
|
|
$ |
31,310 |
|
|
$ |
22,010 |
|
|
$ |
5,925 |
|
|
$ |
16,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note1: |
|
Fair values of $4.2 million and $5.9 million comprising of
intermediated transactions with members and interest-rate caps sold to members
(with capped floating-rate advances) were collateralized at March 31, 2011 and
December 31, 2010. |
|
Note2: |
|
Members are required to pledge collateral to secure
derivatives purchased by the FHLBNY as an intermediary on behalf of its
members. Eligible collateral includes: (1) one-to-four-family and multi-family
mortgages; (2) U.S. Treasury and government-agency securities; (3)
mortgage-backed securities; and (4) certain other collateral which is real
estate-related and has a readily ascertainable value, and in which the FHLBNY
can perfect a security interest. As a result of the collateral agreements with
its members, the FHLBNY believes that its maximum credit exposure due to the
intermediated transactions was $0 at March 31, 2011 and December 31, 2010. |
|
Note3: |
|
As reported in the Statements of Condition. |
95
Liquidity, Cash Flows, Short-Term Borrowings and Short-Term Debt
The FHLBNYs primary source of liquidity is the issuance of consolidated obligation bonds and
discount notes. To refinance maturing consolidated obligations, the Bank relies on the willingness
of the investors to purchase new issuances. The FHLBNY has access to the discount note market and
the efficiency of issuing discount notes is an important factor as a source of liquidity, since
discount notes can be issued any time and in a variety of amounts and maturities. Member deposits
and capital stock purchased by members are another source of funds. Short-term unsecured borrowings
from other FHLBanks and in the Federal funds market provide additional sources of liquidity. In
addition, the Secretary of the Treasury is authorized to purchase up to $4.0 billion of
consolidated obligations from the FHLBanks.
The FHLBNYs liquidity position remains in compliance with all regulatory requirements and
management does not foresee any changes to that position.
Finance Agency Regulations Liquidity
Beginning December 1, 2005, with the implementation of the Capital Plan, the Financial Management
Policy rules of the Finance Agency with respect to liquidity were superseded by regulatory
requirements that are specified in Parts 917, 932 and 965 of Finance Agency regulations and are
summarized below. Each FHLBank shall at all times have at least an amount of liquidity equal to the
current deposits received from its members that may be invested in:
|
|
Obligations of the United States; |
|
|
Deposits in banks or trust companies; or |
|
|
Advances with a maturity not to exceed five years. |
In addition, each FHLBank shall provide for contingency liquidity, which is defined as the sources
of cash an FHLBank may use to meet its operational requirements when its access to the capital
markets is impeded. The FHLBNY met its contingency liquidity requirements. Liquidity in excess of
requirements is summarized in the table titled Contingency Liquidity.
Violations of the liquidity requirements would result in non-compliance penalties under
discretionary powers given to the Finance Agency under applicable regulations, which include other
corrective actions.
Liquidity Management
The FHLBNY actively manages its liquidity position to maintain stable, reliable, and cost-effective
sources of funds while taking into account market conditions, member demand, and the maturity
profile of the FHLBNYs assets and liabilities. The FHLBNY recognizes that managing liquidity is
critical to achieving its statutory mission of providing low-cost funding to its members. In
managing liquidity risk, the FHLBNY is required to maintain certain liquidity measures in
accordance with the FHLBank Act and policies developed by the FHLBNY management and approved by the
FHLBNYs Board of Directors. The specific liquidity requirements applicable to the FHLBNY are
described in the next four sections.
Deposit Liquidity. The FHLBNY is required to invest an aggregate amount at least equal to the
amount of current deposits received from the FHLBNYs members in: (1) obligations of the U.S.
government; (2) deposits in banks or trust companies; or (3) advances to members with maturities
not exceeding five years. In addition to accepting deposits from its members, the FHLBNY may accept
deposits from other FHLBank or from any other governmental instrumentality. Deposit liquidity is
calculated daily. Quarterly average reserve requirements and actual reserves are summarized below
(in millions). The FHLBNY met its requirements at all times.
Table 10.1: Deposit Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Deposit |
|
|
Average Actual |
|
|
|
|
For the Quarters Ended |
|
Reserve Required |
|
|
Deposit Liquidity |
|
|
Excess |
|
March 31, 2011 |
|
$ |
2,404 |
|
|
$ |
44,982 |
|
|
$ |
42,578 |
|
December 31, 2010 |
|
|
3,304 |
|
|
|
44,945 |
|
|
|
41,641 |
|
Operational Liquidity. The FHLBNY must be able to fund its activities as its balance sheet
changes from day to day. The FHLBNY maintains the capacity to fund balance sheet growth through its
regular money market and capital market funding activities. Management monitors the Banks
operational liquidity needs by regularly comparing the Banks demonstrated funding capacity with
its potential balance sheet growth. Management then takes such actions as may be necessary to
maintain adequate sources of funding for such growth. Operational liquidity is measured daily. The
FHLBNY met the requirements at all times.
The following table summarizes excess operational liquidity (in millions):
Table 10.2: Operational Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Balance Sheet |
|
|
Average Actual |
|
|
|
|
For the Quarters Ended |
|
Liquidity Requirement |
|
|
Operational Liquidity |
|
|
Excess |
|
March 31, 2011 |
|
$ |
2,352 |
|
|
$ |
17,796 |
|
|
$ |
15,444 |
|
December 31, 2010 |
|
|
2,937 |
|
|
|
15,500 |
|
|
|
12,563 |
|
Contingency Liquidity. The FHLBNY is required by Finance Agency regulations to hold
contingency liquidity in an amount sufficient to meet its liquidity needs if it is unable, by
virtue of a disaster, to access the consolidated obligation debt markets for at least five business
days. Contingency liquidity includes (1) marketable assets with a maturity of one year or less;
(2) self-liquidating assets with a maturity of one year or less; (3) assets that are generally
acceptable as collateral in the repurchase market; and (4) irrevocable lines of credit from
financial institutions receiving not less than the second-highest credit rating from a nationally
recognized statistical rating organization. The FHLBNY consistently exceeded the regulatory
minimum requirements for contingency liquidity. Contingency liquidity is reported daily. The
FHLBNY met the requirements at all times.
96
The following table summarizes excess contingency liquidity (in millions):
Table 10.3: Contingency Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Five Day |
|
|
Average Actual |
|
|
|
|
For the Quarters Ended |
|
Requirement |
|
|
Contingency Liquidity |
|
|
Excess |
|
March 31, 2011 |
|
$ |
3,024 |
|
|
$ |
17,586 |
|
|
$ |
14,562 |
|
December 31, 2010 |
|
|
2,239 |
|
|
|
15,289 |
|
|
|
13,050 |
|
The FHLBNY sets standards in its risk management policy that address its day-to-day
operational and contingency liquidity needs. These standards enumerate the specific types of
investments to be held by the FHLBNY to satisfy such liquidity needs and are outlined above. These
standards also establish the methodology to be used by the FHLBNY in determining the FHLBNYs
operational and contingency needs. Management continually monitors and projects the FHLBNYs cash
needs, daily debt issuance capacity, and the amount and value of investments available for use in
the market for repurchase agreements. Management uses this information to determine the FHLBNYs
liquidity needs and to develop appropriate liquidity plans.
Advance Roll-Off and Roll-Over Liquidity guidelines. The Finance Agencys Minimum Liquidity
Requirement Guidelines expanded the existing liquidity requirements under Parts 917, 932 and 965 of
the Finance Agency regulations to include additional cash flow requirements under two scenarios -
Advance Roll-Over and Roll-Off scenarios. Each FHLBank, including the FHLBNY, must have
positive cash balances to be able to maintain positive cash flows for 15 days under the Roll-Off
scenario, and for five days under the Roll-Over scenario. The Roll-Off scenario assumes that
advances maturing under their contractual terms would mature, and in that scenario the FHLBNY would
maintain positive cash flows for a minimum of 5 days on a daily basis. The Roll-Over scenario
assumes that the FHLBNYs maturing advances would be rolled over, and in that scenario the FHLBNY
would maintain positive cash flows for a minimum of 15 days on a daily basis. The FHLBNY
calculates the amount of cash flows under each scenario on a daily basis and has been in compliance
with the guidelines.
Other Liquidity Contingencies. As discussed more fully under the section Debt Financing -
Consolidated Obligations, the FHLBNY is primarily liable for consolidated obligations issued on its
behalf. The FHLBNY is also jointly and severally liable with the other FHLBanks for the payment of
principal and interest on the consolidated obligations of all the FHLBanks. If the principal or
interest on any consolidated obligation issued on behalf of the FHLBNY is not paid in full when
due, the following rules apply: the FHLBNY may not pay dividends to, redeem or repurchase shares of
stock of any member or non-member stockholder until the Finance Agency approves the FHLBNYs
consolidated obligation payment plan or other remedy and until the FHLBNY pays all the interest or
principal currently due on all its consolidated obligations. The Finance Agency, at its
discretion, may require any FHLBank to make principal or interest payments due on any consolidated
obligations. The FHLBNY does not believe that it will be called upon to pay the consolidated
obligations of another FHLBank in the future.
Finance Agency regulations also state that the FHLBanks must maintain, free from any lien or
pledge, the following types of assets in an amount at least equal to the amount of consolidated
obligations outstanding:
|
|
|
Obligations of, or fully guaranteed by, the United States; |
|
|
|
Mortgages that have any guaranty, insurance, or commitment from the United States
or any agency of the United States; |
|
|
|
Investments described in section 16(a) of the FHLBank Act, including securities
that a fiduciary or trust fund may purchase under the laws of the state in which the
FHLBank is located; and |
|
|
|
Other securities that are rated Aaa by Moodys or AAA by Standard & Poors. |
Cash flows
Cash and due from banks was $2.9 billion at March 31, 2011, compared to $0.7 billion at March 31,
2010. Cash balances were primarily maintained at the Federal Reserve Banks at those dates for
liquidity purposes for the Banks members. The following discussion highlights the major
activities and transactions that affected FHLBNYs cash
flows for the current year period in this report. Also see Statements of Cash Flows to the
financial statements accompany this MD&A.
Cash flows from operating activities
FHLBNYs operating assets and liabilities support the Banks lending activities to members.
Operating assets and liabilities can vary significantly in the normal course of business due to the
amount and timing of cash flows, which are affected by member-driven borrowing, investment
strategies and market conditions. Management believes cash flows from operations, available cash
balances and the FHLBNYs ability to generate cash through the issuance of consolidated obligation
bonds and discount notes are sufficient to fund the FHLBNYs operating liquidity needs.
In the 2011 first quarter, net cash provided by
operating activities was $236.1 million driven by Net income and adjustments for non-cash items such as the
amount set aside for Affordable Housing Program, OTTI and other provisions for mortgage credit
losses, depreciation and amortization.
97
Net cash generated from operating activities was higher than net income, largely as a result of
adjustments for cash flows from certain interest rate swaps that were characterized as operating
cash in-flows because of the financing element of the interest rate swaps, in addition to non-cash
items.
Cash flows from investing activities
The FHLBNYs investing activities predominantly include advances originated to be held for
portfolio, the AFS and HTM securities portfolios and other short-term interest-earning assets. In
the 2011 first quarter, investing activities provided net cash of $5.3 billion. This resulted
primarily from decreases in advances borrowed by members. Partially offsetting these cash proceeds
was an increase in investment securities purchased.
Short-term Borrowings and Short-term Debt. The primary source of funds, as discussed under the
section Debt Financing Activity and Consolidation Obligation bonds and discount notes, in this MD&A
is the issuance of FHLBank debt to the public. Consolidated obligation discount notes are issued
with maturities up to one year and provide the FHLBNY with short-term funds. Discount notes are
principally used in funding short-term advances, some long-term advances, as well as money market
instruments. The FHLBNY also issues short-term consolidated obligation bonds as part of its
asset-liability management strategy. The FHLBNY may also borrow from another FHLBank, generally
for a period of one day. Such borrowings have been insignificant historically.
The following table summarizes short-term debt and their key characteristics (in thousands):
Table 10.4: Short-term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligations-Bonds With Original |
|
|
|
Consolidated Obligations-Discount Notes |
|
|
Maturities of One Year or Less |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of the period 1 |
|
$ |
19,507,159 |
|
|
$ |
19,391,452 |
|
|
$ |
9,635,000 |
|
|
$ |
12,410,000 |
|
Average outstanding for the period 1 |
|
$ |
17,764,760 |
|
|
$ |
21,727,968 |
|
|
$ |
11,601,667 |
2 |
|
$ |
12,266,929 |
|
Highest outstanding at any month-end 1 |
|
$ |
19,507,159 |
|
|
$ |
27,480,949 |
|
|
$ |
12,835,000 |
|
|
$ |
17,538,000 |
|
|
|
|
1 |
|
Outstanding balances represents the carrying value of discount notes and par value of bonds (less than 1 year) issued and outstanding at the reported dates. |
|
2 |
|
The amount represents monthly average outstanding balance for the three months ended March 31, 2011. |
Leverage Limits and Unpledged Asset Requirements
Finance Agency regulations require the FHLBanks to maintain, in the aggregate, unpledged qualifying
assets equal to the consolidated obligations outstanding. Qualifying assets are defined as cash;
secured advances; assets with an assessment or rating at least equivalent to the current assessment
or rating of the consolidated obligations; obligations, participations, mortgages, or other
securities of or issued by the United States or an agency of the United States; and such securities
in which fiduciary and trust funds may invest under the laws of the state in which the FHLBank is
located.
The FHLBNY met the Finance Agencys requirement that unpledged assets, as defined under
regulations, exceed the total of consolidated obligations at all periods in this report.
Legislative and Regulatory Developments
The legislative and regulatory environment for the Bank continues to change as financial
regulators issue proposed and/or final rules to implement the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) enacted in July 2010 and Congress begins to debate
proposals for housing finance and GSE reform.
Dodd-Frank Act
As discussed under Legislative and Regulatory Developments on page 37 in the Banks 2010 Form 10-K,
the Dodd-Frank Act will likely impact the FHLBNYs business operations, funding costs, rights,
obligations, and/or the environment in which the FHLBNY carries out its housing finance mission.
Certain regulatory actions during the period covered by this report resulting from the Dodd-Frank
Act that may have an important impact on the Bank are summarized below, although the full effect of
the Dodd-Frank Act will become known only after the required
regulations, studies and reports are issued and finalized.
New Requirements for the Banks Derivatives Transactions
The Dodd-Frank Act provides for new statutory and regulatory requirements for derivative
transactions, including those utilized by the Bank to hedge its interest rate and other risks. As
a result of these requirements, certain derivative transactions will be required to be cleared
through a third-party central clearinghouse and traded on regulated exchanges or new swap execution
facilities. Such cleared trades are expected to be subject to initial and variation margin
requirements established by the clearinghouse and its clearing members. While clearing swaps may
reduce counterparty credit risk, the margin requirements for cleared trades have the potential of
making derivative transactions more costly.
98
The Dodd-Frank Act will also change the regulatory landscape for derivative transactions that are
not subject to mandatory clearing requirements (uncleared trades). While the FHLBNY expects to
continue to enter into uncleared trades on a bilateral basis, such trades are expected to be
subject to new regulatory requirements, including new mandatory reporting requirements, new
documentation requirements and new minimum margin and capital requirements imposed by other federal
regulators. Under the proposed margin rules, the FHLBNY will have to post both initial margin and
variation margin to its swap dealer counterparties. Pursuant to additional FHFA
provisions, the Bank will be required to collect both initial margin and variation margin from its
swap dealer counterparties, without any thresholds. These margin requirements and any related
capital requirements could adversely impact the liquidity and pricing of certain uncleared
derivative transactions entered into by the Bank and thus also make uncleared trades more costly.
The Commodity Futures Trading Commission (CFTC) has issued a proposed rule requiring that
collateral posted by swaps customers to a clearinghouse in connection with cleared swaps be legally
segregated on a customer basis. However, in connection with this proposed rule the CFTC has left
open the possibility that customer collateral would not have to be legally segregated but could
instead be commingled with all collateral posted by other customers of the clearing member. Such
commingling would put the Banks collateral at risk in the event of a default by another customer
of our clearing member. To the extent that the CFTCs final rule places the Banks posted
collateral at greater risk of loss in the clearing structure than under the current
over-the-counter market structure, we may be adversely impacted.
The Dodd-Frank Act will require swap dealers and certain other large users of derivatives to
register as swap dealers or major swap participants, as the case may be, with the CFTC and/or
the SEC. Based on the definitions in the proposed rules jointly issued by the CFTC and SEC, it
does not appear likely that the FHLBNY will be required to register as a major swap participant,
although this remains a possibility. Also, based on the definitions in the proposed rules, it does
not appear likely that the FHLBNY will be required to register as a swap dealer as a result of
the derivative transactions that the Bank enters into with dealer counterparties for the purpose of
hedging and managing the Banks interest rate risk, which constitute the great majority of the
Banks derivative transactions. However, based on the proposed rules, it is possible that the
FHLBNY could be required to register with the CFTC as a swap dealer based on the intermediated
swaps that the Bank has historically entered into with the Banks members.
It is also unclear how the final rule will treat caps, floors and other derivatives embedded in
advances to the FHLBNYs members. The CFTC and SEC have issued joint proposed rules further
defining the term swap under the Dodd-Frank Act. These proposed rules and accompanying
interpretive guidance clarify that certain products will or will not be regulated as swaps.
However, at this time it remains unclear whether certain transactions between the Bank and our
member customers will be treated as swaps. Depending on how the terms swap and swap dealer
are finally defined in the final regulations, the FHLBNY may be faced with the business decision of
whether to continue to offer swaps to member customers if those transactions would require the
Bank to register as a swap dealer. Designation as a swap dealer would subject the Bank to
significant additional regulation and cost including, registration with the CFTC, new internal and
external business conduct standards, additional reporting requirements and additional swap-based
capital and margin requirements. Even if the Bank is designated as a swap dealer, the proposed
regulation would permit the Bank to apply to the CFTC to limit such designation to those specified
activities for which the Bank is acting as a swap dealer. Upon such designation, the hedging
activities of the Bank would not be subject to the full requirements that will generally be imposed
on traditional swap dealers.
The FHLBNY, together with the other FHLBanks, is actively participating in the development of the
regulations under the Dodd-Frank Act by formally commenting to the regulators regarding a variety
of rulemakings that could impact the FHLBanks. It is not expected that final rules implementing
the Dodd-Frank Act will become effective until the latter half of 2011 and delays beyond that time
are possible.
Regulation of Certain Nonbank Financial Companies
Federal Reserve Board Proposed Rule on Regulatory Oversight of Nonbank Financial Companies. On
February 11, 2011, the Federal Reserve Board issued a proposed rule that would define certain key
terms to determine which nonbank financial companies will be subject to the Federal Reserves
regulatory oversight. The proposed rule provides that a company is predominantly engaged in
financial activities if:
|
|
|
the annual gross financial revenue of the company represents 85 percent or more of
the companys gross revenue in either of its two most recent completed fiscal years; or |
|
|
|
the companys total financial assets represent 85 percent or more of the companys
total assets as of the end of either of its two most recently completed fiscal years. |
Comments on this proposed rule were due by March 30, 2011.
The FHLBNY would be predominantly engaged in financial activities under either prong of the
proposed test. In pertinent part to the Bank, the proposed rule also defines significant nonbank
financial company to mean a nonbank financial company that had $50 billion or more in total assets
as of the end of its most recently completed fiscal year.
Oversight Council Notice of Proposed Rulemaking on Authority to Supervise and Regulate Certain
Nonbank Financial Companies. On January 26, 2011, the Oversight Council issued a proposed rule
that would implement the Oversight Councils authority to subject nonbank financial companies to
the supervision of the Federal Reserve Board and certain prudential standards. The proposed rule
defines nonbank financial company broadly enough to likely cover the Bank. Also, under the
proposed rule, the Oversight Council will consider certain factors in determining whether to
subject a nonbank financial company to supervision and prudential standards. Some factors
identified include: the availability of substitutes for the financial services and products the
entity provides as well as the entitys size; interconnectedness with other financial firms;
leverage, liquidity risk; and maturity mismatch and existing regulatory scrutiny. If the FHLBNY is
determined to be a nonbank financial company subject to the Oversight Councils regulatory
requirements, then its operations and business are likely to be affected. Comments on this
proposed rule were due by February 25, 2011.
99
Oversight Council Recommendations on Implementing the Volcker Rule. In January 2011, the Oversight
Council issued recommendations for implementing certain prohibitions on proprietary trading,
commonly referred to as the Volcker Rule. Institutions subject to the Volcker Rule may be subject
to various limits with regard to their proprietary trading and various regulatory requirements to
ensure compliance with the Volcker Rule. If the FHLBNY is made subject to the Volcker Rule, then
the Bank may be subject to additional limitations on the composition of its investment portfolio
beyond FHFA regulations. These limitations may potentially result in less profitable investment
alternatives. Further, complying with related regulatory requirements would be likely to increase
the Banks regulatory requirements and incremental costs. The FHLBank Systems consolidated
obligations generally are exempt from the operation of this rule, subject to certain limitations,
including the absence of conflicts of interest and certain financial risks.
FDIC Regulatory Actions
FDIC Interim Final Rule on Dodd-Frank Orderly Liquidation Resolution Authority. On January 25,
2011, the FDIC issued an interim final rule on how the FDIC would treat certain creditor claims
under the new orderly liquidation authority established by the Dodd-Frank Act. The Dodd-Frank Act
provides for the appointment of the FDIC as receiver for a financial company, not including
FDIC-insured depository institutions, in instances where the failure of the company and its
liquidation under other insolvency procedures (such as bankruptcy) would pose a significant risk to
the financial stability of the United States. The interim final rule provides, among other things:
|
|
|
a valuation standard for collateral on secured claims; |
|
|
|
that all unsecured creditors must expect to absorb losses in any liquidation and
that secured creditors will only be protected to the extent of the fair value of their
collateral; |
|
|
|
a clarification of the treatment for contingent claims; and |
|
|
|
that secured obligations collateralized with U.S. government obligations will be
valued at fair market value. |
Comments on this interim final rule were due by March 28, 2011. Valuing most collateral at fair
value, rather than par, could adversely impact the value of the Banks investments in the event of
the issuers insolvency.
FDIC Final Rule on Assessment System. On February 25, 2011, the FDIC issued a final rule to revise
the assessment system applicable to FDIC insured financial institutions. The rule, among other
things, implements a provision in the Dodd-Frank Act to redefine the assessment base used for
calculating deposit insurance assessments. Specifically, the rule changes the assessment base for
most institutions from adjusted domestic deposits to average consolidated total assets minus
average tangible equity. This rule became effective on April 1, 2011, so the FHLBNY advances are
now included in its members assessment base. The rule also eliminates an adjustment to the base
assessment rate paid for secured liabilities, including the FHLBNY advances, in excess of 25% of an
institutions domestic deposits since these are now part of the assessment base. To the extent
that increased assessments increase the cost of advances for some members, it may negatively impact
their demand for the Banks advances.
Joint Regulatory Actions
Proposed Rule on Incentive-based Compensation Arrangements. On April 14, 2011, seven federal
financial regulators, including the FHFA, published a proposed rule that would prohibit covered
financial institutions from entering into incentive-based compensation arrangements that encourage
inappropriate risks.
Applicable to the FHLBanks and the Office of Finance, the rule would:
|
|
|
prohibit excessive compensation; |
|
|
|
prohibit incentive compensation that could lead to material financial loss; |
|
|
|
require an annual report; |
|
|
|
require policies and procedures; and |
|
|
|
require mandatory deferrals of 50% of incentive compensation over three years for
executive officers. |
Covered persons under the rule would include senior management responsible for the oversight of
firm wide activities or material business lines and non-executive employees or groups of those
employees whose activities may expose the institution to a material loss.
Under the proposed rule, covered financial institutions would be required to comply with three key
risk management principles related to the design and governance of incentive-based compensation:
balanced design, independent risk management controls and strong governance.
The proposed rule identifies four methods to balance compensation design and make it more sensitive
to risk: risk adjustment of awards, deferral of payment, longer performance periods and reduced
sensitivity to short-term performance. Larger covered financial institutions, like the Bank, would
also be subject to a mandatory 50% deferral of incentive-based compensation for executive officers
and board oversight of incentive-based compensation for certain risk-taking employees who are not
executive officers. The proposed rule would impact the design of the Banks compensation policies
and practices, including its incentive compensation policies and practices, if adopted as proposed.
Comments on the proposed rule are due by May 31, 2011.
100
Proposed Rule on Credit Risk Retention for Asset-Backed Securities. On April 29, 2011, the Federal
banking agencies, the FHFA, the Department of Housing and Urban Development and the Securities and
Exchange Commission jointly issued a proposed rule, which proposes requiring sponsors of
asset-backed securities to retain a minimum of five percent economic interest in a portion of the
credit risk of the assets collateralizing asset-backed securities, unless all the assets
securitized satisfy specified qualifications.
The proposed rule specifies criteria for qualified residential mortgage, commercial real estate,
auto and commercial loans that would make them exempt from the risk retention requirement. The
criteria for qualified residential mortgages is described in the proposed rulemaking as those
underwriting and product features which, based on historical data, are associated with low risk
even in periods of decline of housing prices and high unemployment.
Key issues in the proposed rule include: (1) the appropriate terms for treatment as a qualified
residential mortgage; (2) the extent to which Fannie Mae and Freddie Mac related securitizations
will be exempt from the risk retention rules; and (3) the possibility of creating a category of
high quality non-qualified residential mortgage loans that would have less than a five percent risk
retention requirement.
If adopted as proposed, the rule could reduce the number of loans originated by the FHLBNYs
members, which could negatively impact member demand for the Banks products. Comments on this
proposed rule are due on June 10, 2011.
Housing Finance and GSE Reform
In the wake of the financial crisis and related housing problems, both Congress and the Obama
Administration are considering changes to the U.S. housing finance structure, specifically
reforming or eliminating Fannie Mae and Freddie Mac. These efforts may have implications for the
FHLBanks.
On February 11, 2011, the Department of the Treasury and the U.S. Department of Housing and Urban
Development issued a report to Congress entitled Reforming Americas Housing Finance Market. The
reports primary focus is to provide options for Congressional consideration regarding the
long-term structure of housing finance, including reforms specific to Fannie Mae and Freddie Mac.
In addition, the Obama Administration noted it would work, in consultation with the FHFA and
Congress, to restrict the areas of mortgage finance in which Fannie Mae, Freddie Mac and the
FHLBanks operate so that overall government support of the mortgage market will be substantially
reduced over time.
Although the FHLBanks are not the primary focus of this report, they are recognized as playing a
vital role in helping smaller financial institutions access liquidity and capital to compete in an
increasingly competitive marketplace. The report suggests the following possible reforms for the
FHLBank System:
|
|
|
focus the FHLBanks on small- and medium-sized financial institutions; |
|
|
|
restrict membership by allowing each institution eligible for membership to be an active
member in only a single FHLBank; |
|
|
|
limit the level of outstanding advances to larger members; and |
|
|
|
reduce FHLBank investment portfolios and their composition, focusing FHLBanks on
providing liquidity for insured depository institutions. |
The report also supports exploring additional means to provide funding to housing lenders,
including potentially the development of a covered bond market.
In response, several bills have been introduced in Congress. While none propose specific changes
to the FHLBanks, the FHLBNY could nonetheless be affected in numerous ways by changes to the U.S.
housing finance structure and to Fannie Mae and Freddie Mac. For example, the FHLBanks
traditionally have allocated a significant portion of their investment portfolio to investments in
Fannie Mae and Freddie Mac debt securities. Accordingly, the FHLBanks investment strategies would
likely be affected by winding down those entities. Winding down these two GSEs, or limiting the
amount of mortgages they purchase, also could increase demand for the FHLBank advances if the
FHLBank members responded by retaining more of their mortgage loans in portfolio, using advances to
fund the loans.
It is also possible that Congress will consider any or all of the specific changes to the FHLBanks
suggested by the Administrations proposal. If legislation is enacted incorporating these changes,
the FHLBanks could be significantly limited in their ability to make advances to their members and
subject to additional limitations on their investment authority. Additionally, if Congress enacts
legislation encouraging the development of a covered bond market, FHLBank advances could be reduced
in time as larger members use covered bonds as an alternative form of wholesale mortgage financing.
The potential effect of housing finance and GSE reform on the FHLBanks is unknown at this time and
will depend on the legislation, if any, that is ultimately enacted.
FHFA Regulatory Actions
Final Rule on Temporary Increases in Minimum Capital Levels. On March 3, 2011, the FHFA issued a
final rule effective April 4, 2011 authorizing the Director of the FHFA to increase the minimum
capital level for an FHLBank if the Director determines that the current level is insufficient to
address such FHLBanks risks. The rule provides the factors that the Director may consider in
making this determination including the FHLBanks:
101
|
|
current or anticipated declines in the value of assets held by it; |
|
|
|
ability to access liquidity and funding; |
|
|
|
credit, market, operational and other risks; |
|
|
|
current or projected declines in its capital; |
|
|
|
material compliance with regulations, written orders, or agreements; |
|
|
|
housing finance market conditions; |
|
|
|
level of retained earnings; |
|
|
|
initiatives, operations, products or practices that entail heightened risk; |
|
|
|
ratio of market value of equity to the par value of capital stock; and/or |
|
|
|
other conditions as notified by the Director. |
The rule provides that the Director shall consider the need to maintain, modify or rescind any such
increase no less than every 12 months. If the FHLBNY is required to increase its minimum capital
level, the Bank may need to lower or suspend dividend payments to increase retained earnings to
satisfy such increase. Alternatively, the FHLBNY could satisfy an increased capital requirement by
disposing of assets to decrease the size of its balance sheet relative to total outstanding stock,
which may adversely impact the Banks results of operations and financial condition and ability to
satisfy the Banks mission.
Final Rule on FHLBank Liabilities. On April 4, 2011, the FHFA issued a final rule that would, among
other things:
|
|
|
reorganize and re-adopt Finance Board regulations dealing with consolidated
obligations, as well as related regulations addressing other authorized FHLBank
liabilities and book entry procedures for consolidated obligations; |
|
|
|
|
implement recent statutory amendments that removed authority from the FHFA to issue
consolidated obligations; |
|
|
|
|
specify that the FHLBanks issue consolidated obligations that are the joint and
several obligations of the FHLBanks as provided for in the statute rather than as joint
and several obligations of the FHLBanks as provided for in the current regulation; and |
|
|
|
|
provide that consolidated obligations are issued under Section 11(c) of the FHLBank
Act rather than under Section 11(a) of the FHLBank Act. |
This rule is not expected to have any adverse impact on the FHLBanks joint and several liability
for the principal and interest payments on consolidated obligations. This rule became effective
May 4, 2011.
Regulatory Policy Guidance on Reporting of Fraudulent Financial Instruments. On January 27, 2010,
the FHFA issued a regulation requiring the FHLBanks to report to the FHFA upon the discovery of any
fraud or possible fraud related to the purchase or sale of financial instruments or loans. On
March 29, 2011, the FHFA issued immediately effective final guidance which sets forth fraud
reporting requirements for the FHLBanks under the regulation. The guidance, among other things,
provides examples of fraud that should be reported to the FHFA and the FHFAs Office of Inspector
General. In addition, the guidance requires FHLBanks to establish and maintain effective internal
controls, policies, procedures and operational training to discover and report fraud or possible
fraud. Although complying with the guidance will increase the FHLBNYs regulatory requirements,
the Bank does not expect any material incremental costs or adverse impact to its business.
Proposed Rule on Private Transfer Fee Covenants. On February 8, 2011, the FHFA issued a proposed
rule that would restrict the Bank from purchasing, investing in, or taking security interests in,
mortgage loans on properties encumbered by private transfer fee covenants, securities backed by
such mortgage loans, and securities backed by the income stream from such covenants, except for
certain transfer fee covenants. Excepted transfer fee covenants would include covenants to pay a
private transfer fees to covered associations (including organizations comprising owners of home,
condominiums, or cooperatives or certain other tax-exempt organizations) that use the private
transfer fees exclusively for the direct benefit of the property. The foregoing restrictions would
apply only to mortgages on properties encumbered by private transfer fee covenants created on or
after February 8, 2011, and to such securities backed by such mortgages, and to securities issued
after that date and backed by revenue from private transfer fees regardless of when the covenants
were created. The FHLBNY would be required to comply with the regulation within 120 days of the
publication of the final rule. To the extent that a final rule limits the type of collateral the
Bank accept for advances and the type of loans eligible for purchase under the MPF Xtra product,
the Banks business may be adversely impacted. Comments on the proposed rule were due by April 11,
2011.
Advance Notice of Proposed Rulemaking on Use of NRSRO Credit Ratings. On January 31, 2011, the
FHFA issued an advanced notice of proposed rulemaking that would implement a provision in
Dodd-Frank Act that requires all federal agencies to remove regulations that require use of NRSRO
credit ratings in the assessment of a security. The notice seeks comment regarding certain
specific FHFA regulations applicable to FHLBanks including risk-based capital requirements,
prudential requirements, investments, and consolidated obligations. Comments on this advance
notice of rulemaking were due on March 17, 2011.
Advance Notice of Proposed Rulemaking on FHLBank Members. On December 27, 2010, the FHFA issued an
advance notice of proposed rulemaking to address its regulations on FHLBank membership to ensure
such regulations are consistent with maintaining a nexus between FHLBank membership and the housing
and community development mission of the FHLBanks, as further discussed on page 41 in the
Legislative and Regulatory Developments section in the FHLBNYs 2010 Form 10-K.
102
|
|
|
ITEM 3. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk Management. Market risk or interest rate risk (IRR) is the risk of loss to
market value or future earnings that may result from changes in the interest rate environment.
Embedded in IRR is a tradeoff of risk versus reward. The FHLBNY could earn higher income by having
higher IRR through greater mismatches between its assets and liabilities at the cost of potentially
significant declines in market value and future income if the interest rate environment turned
against the FHLBNYs expectations. The FHLBNY has opted to retain a modest level of IRR which
allows it to preserve its capital value while generating steady and predictable income. In keeping
with that philosophy, the FHLBNYs balance sheet consists of predominantly short-term and
LIBOR-based assets and liabilities. More than 85 percent of the FHLBNYs financial assets are
either short-term or LIBOR-based, and a similar percentage of its liabilities are also either
short-term or LIBOR based. These positions protect the FHLBNYs capital from large changes in
value arising from interest rate or volatility changes.
The primary tool used by management to achieve the desired risk profile is the use of interest rate
exchange agreements (Swaps). All the LIBOR-based advances are long-term advances that are
swapped to 3- or 1-month LIBOR or possess adjustable rates which periodically reset to a LIBOR
index. Similarly, a majority of the long-term consolidated obligations are swapped to 3- or
1-month LIBOR. These features create a relatively steady income that changes in concert with
prevailing interest rate changes to maintain a spread to short-term rates.
Despite its conservative philosophy, IRR does arise from a number of aspects of the FHLBNYs
portfolio. These include the embedded prepayment rights, refunding needs, rate resets between the
FHLBNYs short-term assets and liabilities, and basis risks arising from differences between the
yield curves associated with the FHLBNYs assets and its liabilities. To address these risks, the
FHLBNY uses certain key IRR measures including re-pricing gaps, duration of equity (DOE), value
at risk (VaR), net interest income (NII) at risk, key rate durations (KRD), and forecasted
dividend rates.
Risk Measurements. The FHLBNYs Risk Management Policy sets up a series of risk limits that the
FHLBNY calculates on a regular basis. The risk limits are as follows:
|
|
|
The option-adjusted DOE is limited to a range of +2.0 years to -3.5 years in the rates
unchanged case and to a range of +/-6.0 years in the +/-200bps shock cases. Due to the
low interest rate environment beginning in early 2008, the March 2010, June 2010,
September 2010, December 2010, and March 2011 rates were too low for a meaningful parallel
down-shock measurement. |
|
|
|
|
The one-year cumulative re-pricing gap is limited to 10 percent of total assets. |
|
|
|
|
The sensitivity of expected net interest income over a one-year period is limited to a
-15 percent change under both the +/-200bps shocks compared to the rates unchanged case. |
|
|
|
|
The potential decline in the market value of equity is limited to a 10 percent change
under the +/-200bps shocks. |
|
|
|
|
KRD exposure at any of nine term points (3-month, 1-year, 2-year, 3-year, 5-year,
7-year, 10-year, 15-year, and 30-year) is limited to between +/-12 months through the
3-year term point and a cumulative limit of +/-30 months from the 5-year through 30-year
term points. |
The FHLBNYs portfolio, including its derivatives, is tracked and the overall mismatch between
assets and liabilities is summarized by using a DOE measure. The FHLBNYs last five quarterly DOE
results are shown in years in the table below (note that, due to the on-going low interest rate
environment, there was no down-shock measurement performed between the first quarter of 2010 and
the first quarter of 2011):
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Case DOE |
|
|
-200bps DOE |
|
+200bps DOE |
|
March 31, 2010 |
|
|
-0.51 |
|
|
N/A |
|
|
3.81 |
|
June 30, 2010 |
|
|
-1.20 |
|
|
N/A |
|
|
2.80 |
|
September 30, 2010 |
|
|
-2.13 |
|
|
N/A |
|
|
1.46 |
|
December 31, 2010 |
|
|
-1.09 |
|
|
N/A |
|
|
2.92 |
|
March 31, 2011 |
|
|
-0.29 |
|
|
N/A |
|
|
3.48 |
|
The DOE has remained within its limits. Duration indicates any cumulative re-pricing/maturity
imbalance in the FHLBNYs financial assets and liabilities. A positive DOE indicates that, on
average, the liabilities will re-price or mature sooner than the assets while a negative DOE
indicates that, on average, the assets will re-price or mature earlier than the liabilities. The
FHLBNY measures its DOE using software that incorporates any optionality within the FHLBNYs
portfolio using well-known and tested financial pricing theoretical models.
103
The FHLBNY does not solely rely on the DOE measure as a mismatch measure between its assets and
liabilities. It also performs the more traditional gap measure that subtracts re-pricing/maturing
liabilities from re-pricing/maturing assets over time. The FHLBNY observes the differences over
various horizons, but has set a 10 percent of assets limit on cumulative re-pricings at the
one-year point. This quarterly observation of the one-year cumulative re-pricing gap is provided
in the table below and all values are below 10 percent of assets well within the limit:
|
|
|
|
|
|
|
One Year Re- |
|
|
|
pricing Gap |
|
March 31, 2010 |
|
$4.753 Billion |
|
June 30, 2010 |
|
$4.939 Billion |
|
September 30, 2010 |
|
$6.888 Billion |
|
December 31, 2010 |
|
$5.565 Billion |
|
March 31, 2011 |
|
$5.123 Billion |
|
The FHLBNYs review of potential interest rate risk issues also includes the effect of changes
in interest rates on expected net income. The FHLBNY projects asset and liability volumes and
spreads over a one-year horizon and then simulates expected income and expenses from those volumes
and other inputs. The effects of changes in interest rates are measured to test whether the FHLBNY
has too much exposure in its net interest income over the coming twelve-month period. To measure
the effect, the change to the spread in the shocks is calculated and compared against the base case
and subjected to a -15 percent limit. The quarterly sensitivity of the FHLBNYs expected net
interest income under both +/-200bps shocks over the next twelve months is provided in the table
below (due to the ongoing low interest rate environment, the down-shock measurement was not
performed between the first quarter of 2010 and the first quarter of 2011):
|
|
|
|
|
|
|
|
|
Sensitivity in |
|
Sensitivity in |
|
|
|
the -200bps |
|
the +200bps |
|
|
|
Shock |
|
Shock |
|
March 31, 2010 |
|
N/A |
|
|
3.13 |
% |
June 30, 2010 |
|
N/A |
|
|
12.20 |
% |
September 30, 2010 |
|
N/A |
|
|
12.96 |
% |
December 31, 2010 |
|
N/A |
|
|
9.05 |
% |
March 31, 2011 |
|
N/A |
|
|
3.90 |
% |
Aside from net interest income, the other significant impact on changes in the interest rate
environment is the potential impact on the value of the portfolio. These calculated and quoted
market values are estimated based upon their financial attributes including optionality and then
re-estimated under the assumption that interest rates suddenly rise or fall by 200bps. The worst
effect, whether it is the up or the down shock, is compared to the internal limit of 10 percent.
The quarterly potential maximum decline in the market value of equity under these 200bps shocks is
provided below (due to the ongoing low interest rate environment, the down-shock measurement was not
performed between the first quarter of 2010 and the first quarter of 2011):
|
|
|
|
|
|
|
|
|
Down-shock |
|
+200bps Change in |
|
|
|
Change in MVE |
|
MVE |
|
March 31, 2010 |
|
N/A |
|
|
-4.53 |
% |
June 30, 2010 |
|
N/A |
|
|
-1.62 |
% |
September 30, 2010 |
|
N/A |
|
|
1.63 |
% |
December 31, 2010 |
|
N/A |
|
|
-2.75 |
% |
March 31, 2011 |
|
N/A |
|
|
-3.96 |
% |
As noted, the potential declines under these shocks are within the FHLBNYs limits of a
maximum 10 percent.
104
The following table displays the FHLBNYs maturity/re-pricing gaps as of March 31, 2011 and
December 31, 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity |
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
More Than |
|
|
More Than |
|
|
More Than |
|
|
|
|
|
|
Six Months |
|
|
Six Months to |
|
|
One Year to |
|
|
Three Years to |
|
|
More Than |
|
|
|
or Less |
|
|
One Year |
|
|
Three Years |
|
|
Five Years |
|
|
Five Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-MBS Investments |
|
$ |
10,807 |
|
|
$ |
144 |
|
|
$ |
364 |
|
|
$ |
253 |
|
|
$ |
454 |
|
MBS Investments |
|
|
7,395 |
|
|
|
667 |
|
|
|
1,391 |
|
|
|
432 |
|
|
|
1,214 |
|
Adjustable-rate loans and advances |
|
|
8,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unswapped |
|
|
26,218 |
|
|
|
811 |
|
|
|
1,755 |
|
|
|
685 |
|
|
|
1,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate loans and advances |
|
|
9,934 |
|
|
|
4,915 |
|
|
|
15,597 |
|
|
|
10,902 |
|
|
|
22,944 |
|
Swaps hedging advances |
|
|
52,721 |
|
|
|
(4,402 |
) |
|
|
(14,776 |
) |
|
|
(10,618 |
) |
|
|
(22,924 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fixed-rate loans and advances |
|
|
62,655 |
|
|
|
513 |
|
|
|
821 |
|
|
|
284 |
|
|
|
20 |
|
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
88,873 |
|
|
$ |
1,324 |
|
|
$ |
2,576 |
|
|
$ |
969 |
|
|
$ |
1,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,581 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes |
|
|
19,170 |
|
|
|
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Swapped discount notes |
|
|
100 |
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net discount notes |
|
|
19,270 |
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB bonds |
|
|
21,085 |
|
|
|
11,590 |
|
|
|
23,771 |
|
|
|
7,927 |
|
|
|
3,684 |
|
Swaps hedging bonds |
|
|
41,358 |
|
|
|
(11,048 |
) |
|
|
(21,648 |
) |
|
|
(6,422 |
) |
|
|
(2,240 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net FHLB bonds |
|
|
62,443 |
|
|
|
542 |
|
|
|
2,123 |
|
|
|
1,505 |
|
|
|
1,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
84,294 |
|
|
$ |
779 |
|
|
$ |
2,123 |
|
|
$ |
1,505 |
|
|
$ |
1,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post hedge gaps1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic gap |
|
$ |
4,579 |
|
|
$ |
545 |
|
|
$ |
453 |
|
|
$ |
(536 |
) |
|
$ |
244 |
|
Cumulative gaps |
|
$ |
4,579 |
|
|
$ |
5,124 |
|
|
$ |
5,577 |
|
|
$ |
5,041 |
|
|
$ |
5,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity |
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
More Than |
|
|
More Than |
|
|
More Than |
|
|
|
|
|
|
Six Months |
|
|
Six Months to |
|
|
One Year to |
|
|
Three Years to |
|
|
More Than |
|
|
|
or Less |
|
|
One Year |
|
|
Three Years |
|
|
Five Years |
|
|
Five Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-MBS Investments |
|
$ |
9,240 |
|
|
$ |
169 |
|
|
$ |
374 |
|
|
$ |
245 |
|
|
$ |
399 |
|
MBS Investments |
|
|
7,306 |
|
|
|
874 |
|
|
|
1,485 |
|
|
|
411 |
|
|
|
993 |
|
Adjustable-rate loans and advances |
|
|
8,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unswapped |
|
|
24,667 |
|
|
|
1,043 |
|
|
|
1,859 |
|
|
|
656 |
|
|
|
1,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate loans and advances |
|
|
10,994 |
|
|
|
3,469 |
|
|
|
13,971 |
|
|
|
10,561 |
|
|
|
29,824 |
|
Swaps hedging advances |
|
|
56,262 |
|
|
|
(3,041 |
) |
|
|
(13,069 |
) |
|
|
(10,347 |
) |
|
|
(29,805 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fixed-rate loans and advances |
|
|
67,256 |
|
|
|
428 |
|
|
|
902 |
|
|
|
214 |
|
|
|
19 |
|
Loans to other FHLBanks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
$ |
91,923 |
|
|
$ |
1,471 |
|
|
$ |
2,761 |
|
|
$ |
870 |
|
|
$ |
1,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
2,454 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount notes |
|
|
19,120 |
|
|
|
271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Swapped discount notes |
|
|
100 |
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net discount notes |
|
|
19,220 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Obligation Bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB bonds |
|
|
21,722 |
|
|
|
14,333 |
|
|
|
23,856 |
|
|
|
7,793 |
|
|
|
3,410 |
|
Swaps hedging bonds |
|
|
43,497 |
|
|
|
(13,567 |
) |
|
|
(21,638 |
) |
|
|
(6,167 |
) |
|
|
(2,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net FHLB bonds |
|
|
65,219 |
|
|
|
766 |
|
|
|
2,218 |
|
|
|
1,626 |
|
|
|
1,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
$ |
86,893 |
|
|
$ |
937 |
|
|
$ |
2,218 |
|
|
$ |
1,626 |
|
|
$ |
1,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post hedge gaps1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic gap |
|
$ |
5,030 |
|
|
$ |
534 |
|
|
$ |
543 |
|
|
$ |
(756 |
) |
|
$ |
126 |
|
Cumulative gaps |
|
$ |
5,030 |
|
|
$ |
5,564 |
|
|
$ |
6,107 |
|
|
$ |
5,351 |
|
|
$ |
5,477 |
|
|
|
|
1 |
|
Re-pricing gaps are estimated at the scheduled rate reset dates for floating rate
instruments, and at maturity for fixed rate instruments. For callable instruments, the re-pricing
period is estimated by the earlier of the estimated call date under the current interest rate
environment or the instruments contractual maturity. |
105
|
|
|
ITEM 4T. |
|
CONTROLS AND PROCEDURES. |
|
(a) |
|
Evaluation of Disclosure Controls and Procedures: An
evaluation of
the Banks disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Act)) was carried out under the supervision and with the
participation of the Banks President and Chief Executive Officer, Alfred
A. DelliBovi, and Senior Vice President and Chief Financial Officer,
Patrick A. Morgan, at March 31, 2011. Based on this evaluation, they
concluded that as of March 31, 2011, the Banks disclosure controls and
procedures were effective, at a reasonable level of assurance, in
ensuring that the information required to be disclosed by the Bank in the
reports it files or submits under the Act is (i) accumulated and
communicated to the Banks management (including the President and Chief
Executive Officer and Senior Vice President and Chief Financial Officer)
in a timely manner, and (ii) recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commissions rules and forms. |
|
|
(b) |
|
Changes in Internal Control Over Financial Reporting: There were no
changes in the Banks internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the Banks
last quarter that have materially affected, or are reasonably likely to
materially affect, the Banks internal control over financial reporting. |
106
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
LEGAL PROCEEDINGS |
From time to time, the Federal Home Loan Bank of New York is involved in disputes or
regulatory inquiries that arise in the ordinary course of business. There has been no change with
respect to a continuing legal proceeding involving the FHLBNY that was previously disclosed in Part
1, Item 3 of the FHLBNYs 2010 Annual Report on Form 10-K filed on March 25, 2011.
There have been no material changes from risk factors included in the FHLBNYs Form 10-K for
the fiscal year ended December 31, 2010.
|
|
|
Item 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Not applicable
|
|
|
Item 3. |
|
DEFAULTS UPON SENIOR SECURITIES |
None.
|
|
|
Item 4. |
|
(REMOVED AND RESERVED) |
|
|
|
Item 5. |
|
OTHER INFORMATION |
None
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Filed with |
|
|
|
|
|
|
No. |
|
Exhibit Description |
|
this Form 10-Q |
|
Form |
|
File No. |
|
Date Filed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.01 |
|
|
Bank Benefit Equalization Plan a
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.02 |
|
|
Bank 2011 Incentive Compensation Plan a *
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.03 |
|
|
Joint Capital Enhancement Agreement
|
|
|
|
8-K
|
|
000-51397
|
|
3/1/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.01 |
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for the President and Chief Executive Officer
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.02 |
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for the Senior Vice President and Chief Financial Officer
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.01 |
|
|
Certification by the President and Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.02 |
|
|
Certification by the Senior Vice President and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
X |
|
|
|
|
|
|
|
|
|
Notes: |
|
a |
|
This exhibit includes a management contract, compensatory plan or arrangement
required to be noted herein. |
|
* |
|
Portions of the exhibit have been omitted and separately
filed with the U.S. Securities and Exchange Commission with a request for confidential treatment. |
108
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
Federal Home Loan Bank of New York
(Registrant)
|
|
|
/s/ Patrick A. Morgan
|
|
|
Patrick A. Morgan |
|
|
Senior Vice President and Chief Financial Officer
Federal Home Loan Bank of New York (on behalf of the
registrant and as the Principal Financial Officer) |
|
Date: May 12, 2011
109